3 upvotes, 1 direct replies (showing 1)
View submission: Don't invest recklessly
I have no idea why you’re bringing fractional reserve banking into this
I said "in terms of creating "fake" wealth" not in how it operates. People hate the concept because what happens is a bank gets $100 deposited by you, they loan out $90 of it and some of that $90 goes right back into the bank account of another user, so out of your $100 the bank might possibly have over $100 in deposits. People hate the concept because it's creating fake wealth that doesn't exist, if everyone withdrew their money from a bank at once they bank can't simply recall all their loans and 90% of that money in deposits would have to come from thin air if it's FDIC insured.
Bitcoin is much the same. If somehow every single bitcoin was magically transferred to your wallet (and everyone who currently had bitcoin didn't mind for whatever reason) would you now be the richest person in the world? Could you buy amazon with all this bitcoin? If everyone tried to use their bitcoin all at once, is there really enough "wealth" to buy ~$150billion worth of stuff? Bitcoin is fake wealth because if everyone actually used their bitcoin the price would crash. It's expensive because most bitcoins aren't circulated since people are holding.
No one dumped 150 billion into bitcoin or 23 billion into bitcoin cash.
That's exactly the point, where did this wealth come from? I don't know the ratio but let's say it's 50% (probably lower than this but who knows). If only $75billion was dumped into bitcoin, why is it worth $150billion? Where did that "$75" billion come from? Is there a bitcoin bank that has in its reserves $75billion so that if everyone withdrew their bitcoin they'd at least get something back? If everyone all at once in the same second decided they wanted their "cut" the price would instantly drop to $0 and no one would get anything. The money put into bitcoin just went into other people's pockets. "Bitcoin" is literally worth nothing more than what people are willing to pay for it. Did bitcoin really create enough wealth to feed 50 million people for year?
This is how companies are valuations are arrived upon.
This is **wrong**. When a company goes public it does not suddenly release 100% of itself to the public, it'll release say 30%. If a company thinks it's worth $100million when it goes public it'll release a million shares at $30 each. That money then goes **to the company**. So now the company has $30million in cash it can use to buy equipment, inventory, hire people, etc... Furthermore using the above example:
Let's say everyone all at once would want their cut of Apple and no one wanted to buy a single share, you would not be left with $0, Apple would have to liquidate its holdings and assets and while you may lose money since its stock is worth more than its assets you would not be holding an empty bag. When you buy a stock you're not buying a piece of paper you're buying a piece of an income producing company. If it has a positive PE ratio little by little you're getting value back from it even if no one ever buys a share from you. With bitcoin the value only comes if someone is willing to buy your bitcoin from you.
Bitcoin, like anything, has value because the market assigns it value.
Apple has 375.3 billion in assets, and generates nearly $50billion in profits per year of which it keeps $45billion (aka: increasing assets) and gives shareholders $5billion in direct payment. Apple's currently priced at a PE ratio of 18.62 meaning that if nothing changes it'd take apple 18.62 years to "pay for itself".
"The Market" isn't *assigning* apple it's value, the market is trying to *find* what its value is. When speculating (Gold, Bitcoin) the market assigns a value, and that's much different than a stock.
Comment by ASUjames at 03/12/2017 at 03:33 UTC
1 upvotes, 1 direct replies
You seem like a smart guy who works in finance but you’re connecting dots that shouldn’t be connected and also are not getting the idea of value.
The market IS assigning value to Apple by trading, it is actively figuring this out. The price swings up and down because there is CONSTANT speculation of the market value. IE - Apple announces tomorrow that it had 500 trillion in q4 earnings...well guess what, the market will go apeshit as it reassigns a more correct value to reflect this.
Your second fallacy, much like a lot of people within the space, is to compare bitcoins movement to that of a stock. This is not a stock. It is not a company, so forget price earnings and all of that other nonsense.
Where did the wealth come from?
It came from people purchasing it on the open market, they are WILLING to pay said price for bitcoin. You can interpret it this however which way you please...but people are basically voting with their fiat to say that bitcoin is worth x amount.
Do you know what gives money its value? It’s from participation. You get a group of people who believe something has value and BOOM, it has value.
Gold is just a rare metal but because we collectively agree to this idea that it has value, then it has value. Same as money.
Same as bitcoin.