RE: Stellar's valuation is a HUGE problem!
Insightful analysis REH and a few weeks ago I would have agreed 100%. I do like the way you quantify the value of crypto taking cues from the stock market. I think as time goes on with this new technology and new means of investing we will see more and more things "borrowed" from the world of stock trading, such as indexes like the Dow Jones or S&P 500, or the development of a crypto equivalent of the mutual fund.
I also like how you've tagged the value of a stock to the ability of the stockholder to influence the company. But here's the thing: the vast majority of stockholders have no interest in doing that. Maybe 1/100th of 1%. The other 99.99% of investors are just that - INVESTORS. And they look at other things, not just price/earnings ratio. Those companies who report P/E ratios in the top 20% don't just TANK in comparison to the ones in the lower 20%, but rather just don't do as well, by comparison.
So with cryptocurrency, as long as there are millions of people like me looking for a place to grow money and willing to keep the money in as long as it takes to be positive, that will overshadow any considerations of utility. In the long run, one would hope that the coins with the most utility will do the best in comparison to the ones that , but to say the ones with less utility, or the ones like Stellar that have current values far beyond what's needed to actually use the token, are going to crash or have their bubble burst, ignores the mass psychology of cryptocurrency investing, that is, why people are getting into this game.
It's a brilliant idea, but I don't know that a Price/Actual Use ratio will ever be used as a metric, but if it is, it will be decades down the road and be one of a hundred metrics used to predict future performance, and will only be meaningful if enough others, particularly the respected pundits, use that metric. It may not make sense today to have billions invested in something that only needs millions to function, but really the value of any of this is the value we give it, as a mass of people looking to do something with our money. It doesn't make sense for a public company to be worth 5 times in stocks what it would be worth as a private company based on its merits alone, but that's the nature of the beast when we allow investors in the room.
Glad to see you're getting interested in crypto, Dad.
This bull run of investors getting into stocks just because they are going up and not looking at fundamentals is eventually going to end. Stocks like Netflix that have a huge P/E ratio but not much expected growth are going to be hammered in the future when the bubble bursts. Cryptos with huge market caps but small utility value are also going to get hammered when the crypto bubble bursts. People who hold stocks and cryptos for quick profits are always the ones that panic sell first when the market tanks.
In a few years I expect a coin to take over the market and end up at stores around the world. People will take their money out of fiat and put it into that coin, whatever it is. That's when I expect the value of that crypto to sky rocket into the trillions or tens of trillions and the value of fiat money to tank. Which that will cause stores to stop accepting fiat or charge a lot more for fiat. At that point, people aren't going to be selling their crypto because there won't be a better place to go. I don't expect that to happen for another 10-15 years though.
But going back to my point about Stellar, maybe it will keep a high valuation in the tens of billions of dollars, but I'm putting my money into cryptos that have the potential to go up into the trillions.