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Comment by chadash | Hacker News Reader

No, the wealth actually is gone.

For example, bitcoin has a market cap of $320B. At its peak it was worth about four times that. Did $960B just disappear? Basically, yes.

The coin has no intrinsic value (in the way that a can of corn does, for example). It's worth money because people say it is. And market cap is just a multiple of what it trades for at the margins times the number of shares (coins).

To give an example, say that I bought a bitcoin 10 years ago and that it was my only possession. At its peak, I could have sold the bitcoin for ~$64k, so I had a net worth of 64k. If I didn't sell it at that point and still hold it, I'm now worth ~16k. No one made $48K of of me... there were no transactions in that time period. The "wealth" has simply vanished.

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Let's take a different example. Let's say I have 100 foobar coins. I sell one of them to an associated entity for $1, the market cap is now $100, I have $99 in "wealth". That entity sells one back to me for $2, now the market cap is $200. I sell it back for $3, now the market cap is $300.

Do I now actually have $300 in wealth? No, because it's illiquid, and the bid for it more broadly is likely $0, I have to apply a large liquidity discount. It seems like many communities behind these coins have been doing something similar to the internal trading I've been describing here, and hyping them to find outside people willing to trade some of their real dollars for these worthless coins, and those few trades have been used to establish the broader market caps of these things.

All illiquid and somewhat illiquid have this property to varying degrees, ranging from startup stock (no, selling 20% for $1M to a VC doesn't mean your company is actually worth $5M, unless you could find a buyer for all the stock for that much) all the way up to Amazon, Tesla, Apple, etc, because there's no buyer waiting to absorb all the outstanding stock at the current bid. There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.

Twitter is a counter example for your tech stock scenario. However, you could argue that its hyper-inflated Tesla stock trading for hyper-inflated Twitter stock, much like a BTC millionare, trading BTC for ETH.

Right, if a company finds a buyer, then its market cap is suddenly realized. The liquidity discount is meant to reflect the uncertainty of that given no current bidder for all the stock, and the discount is lower for public companies with demonstrated interest than for private companies. And you can see the downward pressure that Musk’s selling Tesla shares has had on its price.

Indeed. It's no different than if I kept a hand written ledger in a paper notebook and sold entries onto that ledger for USD. In this case, people would see its a piece of paper and scoff at the idea that having their name written onto this paper is worth any money, even if someone else paid money to put their name on the ledger, but doing the exact same thing with cryptocurrencies fools people because the fake spot price and fake market cap is broadcast across the internet as if it were real, obscuring the fact that each of these coins is just the digital version of someone's personal notebook.

There are a lot of people willing to lend you money on the back of less-liquid-than-cash assets, though.

It may not be "real wealth" but it certainly is spending power and psychological cushion, which means different spending choices, which means inflationary pressure.

I had a lot of coworkers who listed crypto holdings on their mortgage application in the past few years. They wouldn't have been bidding as high if the perceived value of those wasn't there.

Yeah, when money's cheap and easy, banks make bad loans. Don't depend on the ability to get asset-backed loans to get you through a downturn, though, banks tend to get tightfisted real fast.

The described foobar coin was illiquid and couldn't be sold. But that's not true for BTC, ETH, and even a lot of the shitcoins that had some decent volume om multiple exchanges.

So in that sense, it _was_ wealth for the holders.

This is precisely how I explained NFTs to my "How can NFTs possibly be bad?" friend.

- You start the day with $200,000. You create an NFT and sell it to yourself for $200,000.

- Now you have $200,000 and a $200,000 NFT, meaning you've doubled your wealth to $400,000.

- If you can convince someone to buy that arbitrary NFT at 95% discount, you end up having $210,000 in cash by the EOD.

> You create an NFT and sell it to yourself for $200,000. > Now you have $200,000 and a $200,000 NFT

But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.

> If you can convince someone to buy that arbitrary NFT at 95% discount

so you just sold the NFT for $10,000. If somebody else got tricked into thinking they got a 95% discount - that's on them. A fashion store often marks up their clothing by 100%, and have "sales" of 50%!

>But you now also have a liability of $200,000. Your total asset is still $200,000 , not $400,000.

Assets are not liabilities, so you'll need to explain why you think it is a liability.

Fashion brands and their physical goods are definitely not the same as NFTs, insomuch as they at least have intrinsic value. NFTs only intrinsic value is they good for ripping off greater fools.

> There would be a buyer willing to absorb all of it at some level, but it's likely at a level far lower than the current market cap.

For crypto, no one would want to buy the entirety of bitcoin, because it basically has no value if it isn't traded, so it's effectively worth $0 if someone owns all of it.

For companies, this isn't necessarily true. When acquisitions happen, the current market cap is usually the floor, not the ceiling. I agree with your overall point though.

He was talking about money and you wealth.

I trust money more than wealth. Unsold stock should not be quantified until the moment it is sold.

It's getting tiring to hear about "so and so billionaire lost X billion". No, they didn't lose anything that they didn't have to begin with. Having more stock than the trade volume of that stock means all of that "wealth" is mostly theoretical.

I totally agree... crazy times in the past few years. I have heard that some people were able to borrow against their "wealth" (stock holdings, crypto holdings, vested ownership shares) for homes, cars, boats and more since Covid. If their "wealth" suddenly evaporates in the form of losses, they find themselves on the wrong side of the trade. Super duper risky and the appetite for these "products" was immense from what I understand.

If you didn't count the "theoretical" wealth you wouldn't call them billionaires in the first place.

That "theoretical" wealth clearly has a massive impact on the real world, so it's silly to pretend it does not exist. For example, Elon didn't buy Twitter with a giant bag of gold coins -- he borrowed against his wealth, which is mostly in stock.

And his "wealth" shrunk far more than what he had to liquidate and pay twitter for.

Because no sane organization will lend out real cash over the same amount of collateral TSLA stock, and leveraged lending opens TSLA to extremely high risk as value dropping would means Musk will be forced to sell to cover/and or stake more TSLA. This is exactly how FTX failed - they counted their own token as their "asset". Spoiler: it didn't work.

Does this wealth have a high impact on the world? Of course it does. But does it has the same impact as same volume of cash? Absolutely not.

Also Zuck lost $100,000,000,000 in wealth when Facebook tanked. Counting beans in hand is not how wealth is calculated.

Many people have a net worth greater than the number of circulating dollars. Also, dollars are not risk-free. They target a few percent annual loss, after all!

He was talking about money, but I think meant wealth based on the context of his response to the OP. They are almost interchangeable, but not in this context.

> Unsold stock should not be quantified until the moment it is sold.

I don't know Elon Musk's finances, but I imagine that he's got a bunch of stock, (let's say) an amount of cash in the tens or even hundreds of millions and debts well above the amount of cash he has on hand. If you don't count unsold stock, then Elon Musk is poorer than most college students.

I agree the numbers are misleading (e.g. Bill Gates money is very diversified and he has already paid many of the capital gains on microsoft stock sales, so comparing his wealth to Elon Musk's with a single number is quite misleading). But you have to count unsold stock for something.

The "market cap" for crypto is just an illusion. There never was enough liquidity. The money was lost the moment you exchanged it to crypto. Some of it is in hands of other people. Some of it was spent to keep the show going (mining, employees for all the crypto businesses etc.).

You and every individual investor could have cashed out but that is as saying that Madoff customers could have cashed out. It's just an illusion. Most of the money disappeared once you deposited and Madoff, SBF, or some other scammer spent it on a new boat or house on an island.

> I had a net worth of 64k No you didn’t. You had a potential net worth of 64k, but you didn’t take advantage. You can’t just compare to peak, your wealth loss/gain comes from comparing to the price you bought it.

How else would you understand wealth? Are people who have loans against massive stock portfolios but relatively little cash (spent on houses, cars, trips, etc)... poor? Obviously not.

OP was worth at least 64k at some point and now is worth at least 16k. The value and total amount of wealth (in US Dollars) has gone down.

What's a potential net worth? "Net worth" is already "how much money would you have if you sold all your assets and settled all your debts". Since for most people most of their wealth is in assets, it's totally normal for net worth to swing up and down as the market value of household goods/land/buildings/companies/bitcoins changes.

The catch is that even if your net worth is a certain amount on paper, you can't necessarily realize that as cash.

Take Elon Musk, for example. A lot of his wealth is in Tesla stock. But he can't sell that stock without also affecting its price. If he decided to sell all of it tomorrow, the price would plummet and he would only receive a fraction of what it's worth today.

This is what a lot of these companies are doing. I can create 100 tokens and sell you one for $1. In theory, my "net worth" is now $99, since I have 99 tokens that are worth $1 each. In reality, if I tried to sell all 99 of them, I'd quickly find that people are actually not willing to buy all of them for that amount.

Agree 100%

What's happening is not great for crypto investors, but it's beneficial for people who want inflation to go down (nearly all of us.)

> The coin has no intrinsic value

This is pretty debatable. Bitcoin does have some intrinsic value as a medium of exchange and store of value.

What can you do with the bits that make up your Bitcoin, other than trade them for something else?

You can prove you actually own how much you want to prove you actually own, without leaking any other information on your identity or current wealth. You can sign documents. You can mount complex escrow processes with it. You can send it worldwide to anybody without even knowing where they live (phone numbers fail), or what their bank is (IBANs fail) or what their email is (gift cards fail) or whether they are allowed by someone else to receive money (paypal fails). You can pool it with friends and set up conditions for safe withdrawal reliant on multiple people agreeing at the same time. And you can receive money from anyone, anywhere around the world, without anyone else's permission.

Só if you send it to someone, what can they do with it?

Yes, but how many coins fulfill those basic requirements? Why is btc special? Why would any of these coins be worth anything besides some fee to convert-to from fiat and convert-from to fiat?

You can pay Bitcoin (and only Bitcoin) to embed messages, typically transaction messages, in the global Bitcoin blockchain.

I was hoping years back that all of this would have taken off for payments rather than silliness. I was wondering if we'd see a (low) Bitcoin value determined by the need to pay BTC transaction fees and those fees being effectively locked up until the next block comes

With all of the options these days, I'd wonder about the characterization of 'intrensic'.

I would say that bitcoin has extrinsic value. The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.

On the opposite end, a can of Cambell's soup has intrinsic value, because it's worth something to someone regardless of what anyone else thinks. The can of soup that Andy Warhol as the basic for his famous paintings has a mixture of both types of value (surely someone will pay significantly more for that can over any other identical can).

> The value it has is because people agree it has value. Imagine I started a blockchain using the exact same code as bitcoin and called it Bitcoin9890812894. It would have the same functionality as bitcoin but a value of $0 since virtually no one else would agree that it has any value.

That doesn’t seem like a contradiction at all, right? If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.

> If your fork somehow became well known and replaced the original, then yeah, your fork would have some intrinsic value as a medium of exchange and a store of value.

Intrinsic value is a value outside of perceived value. A can of soup is calories, which we need to survive, as long as it is edible, it will always be worth something to a human. Farm land has intrinsic value because it can produce food. Diesel has intrinsic value because farmers need this to produce food. Bitcoin9890812895, my fork of Bitcoin9890812894 has no intrinsic value to anyone.

> Intrinsic value is a value outside of perceived value.

Yes, and we're not talking about perceived value. We're talking about intrinsic value from a peer-to-peer network that's used by many people.

It has value only from being accepted by a network of people. That’s not intrinsic value. That’s the very definition of perceived value.

No, I'm not saying that the current market price of bitcoin is the same as its intrinsic value. I'm saying that you can calculate a value of bitcoin using objective measures rather than the current market price of bitcoin. Those objective measures can include things like the capabilities of the bitcoin network, the number of types of people using it, etc.

The value of Bitcoin is the sum of its intrinsic and perceived value.

Consider a hypothetical Bitcoin, without the objective measures you describe. Without the capabilities of the network, people willing to accept it as payment for goods/services —- it is a coin that nobody has a use or want for, i.e. an unadopted shitcoin.

The value of unadopted shitcoins approaches zero as fewer and fewer people use it. Therefore, the value of Bitcoin is entirely comprised of perceived, and not intrinsic value.

Another way:

Compare a Bitcoin with a banknote. A banknote has perceived value (it represents one, or several, dollars, which have a stable value and are accepted universally) and intrinsic value (it is piece of paper that you could burn to provide a small amount of heat, in a pinch). The Bitcoin doesn’t even have that tiny amount of intrinsic value that the banknote has.

During the Weimar Republic, people burned paper money because it was cheaper than wood. In that situation hyperinflation led to the perceived value falling so low that it was below the paper money’s intrinsic value. If everyone stopped accepting Bitcoin and its perceived value evaporated, that Bitcoin would not even have the intrinsic value remaining, of heat from a single burning banknote.

But you're using a far too narrow definition of "intrinsic value" that is not at all the definition used in economics in finance. It doesn't just mean something like "the value it would have to me if I were the only person alive on Earth." Computer networks, protocols, and other technological systems can still have intrinsic value even when they require many people to use them.

I'll debate that- the intrinsic value from exchange is less than the cost to pay the miners to run the network, therefore a negative net present value -- bitcoin is not a store of value, but fundamentally destroys value and relies on greater fools to buy for any price increase.

About the amount of work to make a toy banking system. I never tried, but there are some download and next next finish coin generators, right? So the bitcoin system is worth about a buck or so. (.. if I want to be very generous, we can add the value of the bitcoin brand, and that el salvador accepts it, some apps already can handle it, but really that's it. It's still negligible.)

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