It does actual represent the value, that i the whole point, the market is trying to find the true value. Though it might not represent realized value. The higher the market cap, the harder it is to maintain.
Your point about liquidity is irrelevant, this is the same for literally any asset. Liquidity is a different discussion, in itself, and not necessarily relevant to discussions of valuations.
Though when that is that if any given thing is very illiquid at a certain high price, that means its not actually worth that price, thats why it moves back to find liquidity again. This is called supply and demand dude - and yes of course illiqudity can skew the balances in both direction, but it will find its true valuation, always.
The reason ADA has come down, is literally cause people aint willing to pay 10 billion usd for it. Just in comparison, we could build almost 3 new world trade centers, for that priceā¦
In prime real estate, with no debt, and do you know how much income these buildings generate? A LOTā¦ or 40.000 medium priced houses in the USā¦ or buy a bunch of code, that hasnt even launched yet, with no users and whos future is highly speculative? with tons of other competitors? Thats why ADA cant maintain 10b at this point in time, cause 10b is a freaking boatload of value.
I think cardano investors spekulate that it may be worldwide adopted as Currency and smart contractā¦but in general all markets are spekulation.Because capital scarse the suply ā¦this is also aplyable to realestateā¦
Back to crypto i think the bigest Bubble is bitcoin with its proof of work burning energy for no meaning.
I accept this things as they keep on working AS THE TREND IS YOUR FRIENDā¦
This is an interesting discussion so I wanted to offer my thoughts:
On market cap:
They say a picture is worth a thousand words so I am going to try to show a picture firstā¦ This is the graph representing fixed supply and variable demand. Market cap is simply the price of an asset x its total supply. As many people do in this space they just multiply the current price with the max supply to arrive at max market cap.
Now, when market cap changes, it is always because the demand for a coin changes as we all know the supply is fixed and any efficient market will price that into their calculations. At local points supply can be more flexible as we have traders, whales or early investors who are willing to sell their coin along the price continuum BUT fundamentally the market cap of of a coin with a fixed supply is always (and I mean ALWAYS) will remain a function of its demand.
Shifts in demand for a platform like Cardano could come from any direction but in the long run I believe demand for ADA will be dictated by what the platform itself can produce and at what cost. The price of coins (hence the market cap) will simply represent that potential.
Letās take the direction CH is talking aboutāCardano as the financial infrastructure for the world. We can easily calculate the amount of money generated, spent and accumulated as profit by the financial intermediaries and assess the value captured by Cardano as a result of its adoption as the base infrastructure layer for the banks.
In the whole Africa, banks make around $86 billion annually. They spend around 60% of that revenue on costsāthatās $52 billion annually. Banks spend around $8 billion annually on IT infrastructure alone to sustain their operations. Just to remind you: costs are resources that businesses use to generate revenue.
Now imagine that Cardano came up with a turn-key infrastructure that would provide the same benefits that current IT systems provide but at a fraction of the costs. Even if Cardano reduced IT costs for banks by 50%, the banks would jump on it (thatās $4pb per year of savings/extra profits).
The platform would be making $4 billion/per year that it would capture through in transaction fees. This is the approximate amount the platform stakeholders would make annually not a market cap. Thatās only the banked portion of Africa. Now imagine that Cardano emulates 80% of banking functions and āchargesā again a fraction of the current costs. Letās say that banking becomes so affordable that more and more Africans (currently only 35% have bank accounts) decide to use banks, hence Cardanoās infrastructure. More banks will pop up as it will become relatively cheap to set up banks. More commerce will flow through Cardanoās infrastructure (perhaps in trillions of dollars) as the platform will unlock value from existing infrastructure and discover value through capturing transactions that so far has been left outside the current financial system.
Now multiply that across all the developing world and across a myriad of sectors such as banking infrastructure, identity, real-estate records, supply chain and you may hone in on the true value of Cardanoās platform. Hint: It is way over trillion dollars.Comparing this to the current market value of any other existing asset is meaningless.
Which brings me to my next point:
I would take these kinds of comparisons with a grain of salt.
First, you assume that somehow world trade centers have higher economic value than Cardano without even looking what that $10B market cap could represent.You may want to read the above to understand why you could be wrong.
Second, you compare the price of one asset to another asset to give an impression that something overvalued. You can buy 3.3 billion hamburgers for the price of one world trade center. Does it mean the world trade center is overvalued? Substituting one measure of value by another measure of value of a different asset carries no meaningful analytical weight to it.
Do you really think that three WTC will generate equal amount cash flows? Because in my books the demand would not change because you put up three of them in the market. And if you put them side by side you are very likely to get the same amount of CF divided by three.
Cardano has competitors, sure. But none of them has the intellectual capital or the technical prowess to build reliable systemsāthis is their economic moat. Clients can go with EOS or ETH but they would have to accept the risk of their entire operations failing at some point because someone forgot a comma in their code. This makes Cardanoās correct-by-construction philosophy so indispensable. BTW I donāt see Dan or Vitalik going to Africa to understand their problems or assess these potential markets. Coding in a cubicle and giving speeches isnāt going to help with adoption.
ADA is an infrastructure play. Its markets are either untapped or about to be disrupted. To succeed, it doesnāt have to charge a lot for transactions on its networkāa tiny tx cost multiplied by trillions of transactions would generate more value to stakeholders than your average equity investment that requires huge investments in personnel, capital goods and intellectual rights.
So I wouldnāt compare crypto-platforms to your average equity/real estate investment. These are fundamental technologies that are going to shape the way we organize ourselves (across the globe) to raise capital, create value and transact. They are worth far more than this market is pricing them at. Even if only a fraction of Cardano is capable of becomes true, it will be worth a lot more than $10 billion.
A helpful framework to adopt in valuing crypto platforms? Think of them as sovereign nations that offer highly sought-after services based on decentralized computation/infrastructure. Stakeholders become citizens and value accrues to them as their ecosystem gets adopted by more and more countries. Past a certain point you wouldnāt care about the price of ADA in USD and could very well function with just using ADA as your native currency with instant convertibility to any currency in the worldā¦ at the click of a button on your phone. It is a powerful idea that will not go away.
I wont dispute your overall point, you are correct.
One big but though, Cardano is none of that at current stage, at this point we are an ideaā¦ just a ideaā¦ Cardano is nothing but air at the momentā¦ It has no working product, and it has no users for its network. Granted foundational work has been done, and we have a team, that has value, but that aint going to cut it. Pricing Cardano at 10B usdā¦ is way too far at this stageā¦ It simply does not warrant it. The risk/reward of the project become highly skewed.
Even if you had the idea for google right nowā¦ its just an ideaā¦ no one will give you 1 trillion of the batā¦ no you start at a very low point, and then slowly as your project matches reality, you slowly get to higher valuations. Nobody just hands over investments based on 10b usd valuations for tech ideasā¦ and thats basicly where we are at with many crypto projects, and thats why we will have insane bear markets. Pricing in over-the-top success, without any real accountability or fundamentals to back it up.
If you were to pick RIGHT NOW, to own 3 world trade centers, debt free, or the entire Cardano project in ADA (when it was valued at 10b) would you really, honestly to god, pick Cardano?
99.99% of people will choose the towers, which is exactly why Cardano cant maintain 10b usd valuation, because it doesnāt reflect equal value. Cardano is just not worth 3 towers placed on the best pieces of land the world has to offer, which is why there will not be liquidity (the people who choose ADA over towers) to sustain 10b at this point. It will dry up really quick (which it did) - what will happen is ADA will be sold, to exchange for other assets or even consumer goods.
Because that is the exact same choice you make, when you choose to buy one ada or hold at 10b valuation. You just buy a fraction of the entire valuation.
There is no dispute that Cardano could become a trillion dollar project, thats not the question, but when you are buying into something at 10bā¦ you assume thats almost a given, or that we are on the roadā¦ but thats far from the case - we aint even started on the road.
You can totally make that comparison, because if the question was would you rather own 3 world trade centers, vs 10b equal valuation in gold, or usd, or euros, or silver, or whatever. Thats a more than fair choice to make. I would take the gold over the centers.
No ADA is not a stock, but doesnt change the fact that the ADA has to represent the value its being valued atā¦ or it wont stay at that price. thats the same for goldā¦ if it doesnt represent it, it will go down, if it under-represents it, it will go up. Thats why market cap can easily be used on stocks, silver, gold, houses whatever. If you have house, the price of that house, is its market cap. You paid too high of a āmarket capā for it, it will go down. Because it did not represent the value of what you exchanged it for or perhaps market conditions changed for better or worse, but thats the same thing.
I am glad we can agree on some basic facts. Let me address some of your very valid points.
I would argue we are far from an idea at this stage. We have a mainnet that basically functions as bare-bones cryotocurrency. You can use it: you can send money to anyone across the world and pay a fraction of the costs others would charge you, because tx fees are a function of ADAās price. So there is some value in Cardano as isā¦
I agree with the skewed risk/return profile of investing in Cardano, but in a different way.
Let me Illustrate: Say, if Cardano was indeed worth $1 trillion dollars (based on projected cash flows) and you are given an opportunity to enter at $10b. Would you take it? Because see, when the market prices Cardano at $10b, while its risk-adjusted value is at $1trln, the market is predicting that this venture will not succeed by discounting its value by 99% (10b/1trln). It basically gives Cardano 1% chance of success. Knowing what we know about Cardano the market is severely under-pricing itāfar from even reflecting its current stage/progress. Itās a huge discount even if you say we have a 10% success rate (which by the way is the statistic for early stage investments).
Now If you know (through your research) that the potential is >3x $1 trln ($3trln) or you believe that chances of success are higher (well because we are well past the idea stage and well into building products), then you would jump on the idea BECAUSE compared to the market-priced risks, returns are staggering.
That is, even if you buy ADA at $10B valuation, you can expect reasonably to 100x your money if it hits a 1$trln market cap. Even if you are off by 50% and the market cap reaches $500B within your investment horizon, you can still make a 50x return. Where else would you find these returns?
This is why Cardanoās asymmetric return potential is so damn good especially at these prices.
This is a very good way to frame the question and thank you for this. The choice depends on your risk tolerance. Yes, I would pick Cardano because of its upside potential (see above).
But I know not everyone would do that because people have different risk appetites, thatās why there is a wide spectrum of investment vehicles.
You might even find people who would say no to owning 3 world trade centers because it exposes them to rental/regulation/construction risks. They would be totally fine earning 2% on their investment with US treasuries.
I agree that we are early in the development, but we are also far from the idea stage. When you buy at $10B, it doesnāt necessarily mean you have to have a realized roadmap, because when that happens and we reached a critical adoption level, Cardano could be worth hundreds of billions. Why? Because at that point the probability success changes and so will the price. Remember, the price of an asset is ALWAYS the discounted value of its Future Cash Flows. In case of WTC these cash flows are more predictable but not without risk themselves. Cardanoās cash flows dwarf those of WTC even though they are hard to predict with pinpoint accuracy (because no other equivalent exists at this point). As I said, even if we are off by a large margin, we should be ok.
One final point on market caps: I wouldnāt read into these numbers too much until we have several deep markets with fiat pairs. If I create 100 coins and decide to float 1 coin and the market prices it at $100, it is not the same thing as getting $100 x 100 ==$10K from investors. Because, at this point you just got $100. If you decide to sell all your coins the next day, I am certain that you wonāt get $10K for them. You would probably be lucky to get $1000.
For market caps to carry any meaningful information, you would have to have a fairly large portion of your coins floating in very deep markets. But even then there would be slippage from large orders both ways.
So market cap is somewhat of a mirage, especially for large investors.
A lot of you have been wondering how we would implement a switch from PoW to PoS in time for Serenity. This will be handled by the newly introduced difficulty adjustment scheme, which elegantly guarantees a hard-fork point in the next 16 months.
It works as follow: starting from block 200,000 (very roughly 17 days from now), the difficulty will undergo an exponential increase which will only become noticeable in about a year . At that point (just around the release of the Serenity milestone), weāll see a significant increase in difficulty which will start pushing the block resolution time upwards.
So, a year on, the network will continue to be useful for roughly 3-4 months, but eventually will reach an āIce Ageā of sorts: the difficulty will simply be too high for anyone to find a block. This will allow us to introduce PoS, perhaps via Casper, if it proves itself.
Of course, marketcap doesnāt matter the value of ADA so much. But the number of exchanges where people worldwide can trade ADA does matter heaviely . The biggest problem for Cardano-ADA is that no one in this seems to be aware of this problem.I mean there are too few exchanges that list ADA as a tradeable coin.
