reborn
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- Aug 12, 2018
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Let's say I was to create a new shitcoin and I would have mined the first ten million of those coins. Now I would offer them for sale at $0.01 each and after a year or so they are all sold except for one million that I have kept. At this point a total of $90,000 has been invested in my coin (9 million coins sold at $0.01 each). That is all the money that has ever flown into the coin.
So now after that I stop selling coins and then some guy wants some but there are none available on the market. So he increases his bid to $100 for one coin. One of the owners agrees to sell at that price. At this point the order book will register $100 as the new price of the coin and this is what we get:
There are ten million coins out there.
Last trading price was $100.
=> The market cap is now $1,000,000,000 (one billion Dollars) (10 million coins x $100).
=> A total inflow of $90,100 has created this market cap.
=> My 1 million coins are now worth $100,000,000 (1 million x $100).
So you see how meaningless the price and market cap really are. Just $90,100 of cashflow have created a billion Dollar asset on paper.
Of course this example is exaggerated and unlikely to happen like this in the real world but this is pretty much how crypto assets get blown up these days. You may be worth millions of Dollars on paper but once you'd sell the price would collapse immediately and you'd have nothing at all.
So now after that I stop selling coins and then some guy wants some but there are none available on the market. So he increases his bid to $100 for one coin. One of the owners agrees to sell at that price. At this point the order book will register $100 as the new price of the coin and this is what we get:
There are ten million coins out there.
Last trading price was $100.
=> The market cap is now $1,000,000,000 (one billion Dollars) (10 million coins x $100).
=> A total inflow of $90,100 has created this market cap.
=> My 1 million coins are now worth $100,000,000 (1 million x $100).
So you see how meaningless the price and market cap really are. Just $90,100 of cashflow have created a billion Dollar asset on paper.
Of course this example is exaggerated and unlikely to happen like this in the real world but this is pretty much how crypto assets get blown up these days. You may be worth millions of Dollars on paper but once you'd sell the price would collapse immediately and you'd have nothing at all.
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