Market Cap — A Flawed Yardstick

Pets.com spokes-sock, 02/10/00–11/9/00. RIP.

Every few months, I do an ‘Introduction to Bitcoin’ session for new Ayre Group employees who aren’t focused in this area, such as new hires in our real estate and restaurant businesses. I walk down memory lane to discuss how we got from Bitcoin to thousands of altcoins, and I include this bit: “How many ‘coins’ are there? Thousands! What do they do? Not much! How many are needed? ONE.”

I also include a snapshot from Coinmarketcap so folks can see just how many altcoins there are. My first session was in August 2020: 5,918 cryptocurrencies. I updated the presentation two weeks ago for a new session: We’re up to 8,997 cryptocurrencies! A week later, putting finishing touches on the presentation: 9,117. And today, a few subsequent weeks: 9,284.

57% growth in eight months is really impressive growth….in….something. Growth in ‘we DEFINITELY need our own blockchain’ hobby-coins. An all-time high in DeFi scams. By the way, did you know Dentacoin still exists? FER SHER the dental industry needed its own cryptocurrency!

Given how frothy things are, it’s not surprising some cryptocurrencies that didn’t exist in August 2020 are now top-30 market caps, and some haven’t even launched their ‘project’ yet.

What is Market Cap?

It should make one ask, what does market cap even mean? What does it say to us and about ‘us’, that despite BSV’s price appreciation recently, a brand new shiny (probably scammy) thing has a market cap 3x or 4x the original Bitcoin (BSV), with actual utility, scale, and real growth underway? To me, it says pure greed, willful ignorance, and very inadequate research. But it also serves to remind us how meaningless market cap is, especially in the short term; let’s explore this a bit more.

Market cap(italization) is math borrowed from the capital markets and means how much a company’s equity is worth. ABC Corp., with 100MM shares outstanding and a $10 stock price has a $1B market cap. It’s not what the business is worth — that’s Enterprise Value (EV). For example, if you’re in capital-intensive industries like telecom, heavy industry, and media, you may have a boatload of debt to build ‘Y’ or to have acquired ‘Z’: ABC Corp. might also have $500MM in debt to launch its 5G network, so its EV is actually $1.5B, but I digress.

Then you subtract out the cash on the balance sheet — that’s already baked into the share price. Since ABC Corp. has $300MM in cash, its EV is actually $1.2B. Nobody talks about ‘crypto EVs’, which would be slightly more accurate, but now I super-digress.

But What is it, Really?

Market cap is supposed to represent the perceived total value — at that moment — of a company, or in the ‘crypto’ world, of a cryptocurrency. The key question some of us are obsessing about is “how and why can the public place a $15B valuation on ‘New DeFi Coin’ when it’s just a project, an idea, yet another scammy ICO?”

Comparisons to the dot-com era are fair, and I won’t relitigate those sins here, but I think the current ‘crypto craze’ is much worse. Of course, there is frothiness in the stock market from time to time and its share of fraud (see Enron, WorldCom, Nortel, Bre-X, etc.), but some cryptocurrency valuations are so high, sometimes with nothing to back them except ‘having a laugh’ (I’m talking to you, Doge/Musk), that market cap has lost all meaning.

And of course very little regulatory oversight. It may not mean much in hindsight, but at least Pets.com and its dot-com brethren had to file prospectuses, get reviewed by the SEC, and seek Nasdaq’s approval, i.e. laws were followed, and investor protections were in place. Not so with ICOs and their ilk.

If we dwell on it, sure, it’s irritating that despite BSV’s recent price appreciation, it still doesn’t get the superior valuation it deserves, given what is possible (nay, what is already happening) on BSV’s blockchain and literally impossible on the other 9,283. With all the apps and enterprises live on Bitcoin SV, all the tokenization and smart contract activity, and all the enterprises and governments whose projects are being built, there’s no question BSV should be valued considerably higher.

BAD ‘DYOR’

The majority of people are not willing to ‘do the work’. It’s a problem with DYOR (do your own research) — we’re not suddenly experts just by reading a few articles and listening to the wrong podcasters. People seem to watch a few videos of folks touting this or that coin, particularly if they have ‘laser red’ covering their social media eyes (and/or play air guitar and air bench)…and there — research done, conclusions reached, buy more Doge.

Examples of Uninsightful DYOR

But useful, more in-depth research is out there. Instead of laser-eyed frat boys, there is the Bitcoin Whitepaper and some folks who know a fair bit about it, what Bitcoin (the real Bitcoin) is used for, and how we got here.

Examples of Insightful ‘DYOR’

The Price is Wrong

Kurt Wuckert Jr. has written extensively on the related subject matter in a few CoinGeek articles, such as ‘Bitcoin SV Already Won’ and my recent favourite, ‘I Just Solved DeFi’, with his humourous ‘how-to’ formula: “Step 6: Start selling off billions of dollars in tokens you printed in step one” [but be mindful of] “Step 8: Repeat until the SEC slaps someone on the wrist”…or worse.

But let’s not dwell too much on the short-term market cap movements and the scammers doing their thing. Things will not end well for most of these altcoins. Their days atop the charts are limited, and this era will end in tears, promises unfulfilled, lawsuits and maybe worse outcomes for some.

Grovelling Our Way Higher?

Some have resorted to grovelling as a strategy to boost the market cap. One particular individual, whose name is ‘X’d out to protect his solid reputation, thought he would ‘relay’ his helpful suggestions to a central figure in the BSV delisting campaign, presumably in the hopes this would increase the price of BSV.

Let’s ‘stand back and stand by’ and see if that worked. Aaaand…no, it didn’t. Turns out that attempting to negotiate with near-extortionists (and with a one-month deadline!) will not increase the price of BSV. Tactics like this only lead to embarrassment.

As time marched on, and BSV’s price improved without paying a ransom, it seems everything’s ok again, freeing up some time for this individual to redouble his focus on chest-beating, ego-stroking, and helpfully, denouncing his own antics.

What’s BSV’s Correct Valuation?

In my capital markets days, I had an investment banking boss who said that in theory, there is one correct share price/valuation for a company…it’s just that no one knows what it is. The right answer is ‘Y’, but the pendulum always swings too far one way and then the other, passing Y every time.

I guess it’s similar to how a stopped clock has the right time twice a day…if you’re using a 12-hour clock. Does that mean the time is right only once a day in 24-hour/military time? I’m digressing again.

This boss said if the company is delivering on its business plan and growth strategies, the pendulum will swing in the right direction, and value will be recognized. Indeed, that’s how undervalued companies correct the situation; they build, they grow, they capitalize on opportunities, and the price then takes care of itself. That will happen for BSV as well…so, back to building and launching and ignoring the chest-beating, ego-stroking types, both outside and inside the Bitcoin SV community!

Speaking of the Capital Markets

One small but important point regarding TAAL’s recent C$40MM prospectus financing: As an ex-banker, I get a thrill from seeing a prospectus for a stock offering with a detailed section on Bitcoin SV! Kinda cool, so check it out if you haven’t yet, at www.sedar.com, Canada’s public securities filing system.

There are other public companies that support Bitcoin SV — coincidentally also listed in Canada: BIGG Digital Assets and Banxa, both of which presented at the October 2020 CoinGeek conference, and in BIGG’s case, supports BSV with its Blockchain Intelligence Group analytics unit.

There is another company associated with Bitcoin SV that has announced plans to go public, called Mijem. Mijem is a Gen Z-focused marketplace and social platform that Ayre Group Ventures just invested in and will be adding Bitcoin SV as a cashback loyalty program for buyers and sellers on the app.

In addition to our investment, Mijem worked with a capital markets advisory firm called Sophic Capital to help raise funds with other investors. I spoke to Sean Peasgood, Sophic’s President & CEO, to ask how the investment community reacted to Mijem’s involvement with Bitcoin SV: “Most people in our investor base did not know that BTC can only process 4 to 5 transactions per second. We framed the conversation around the original Bitcoin whitepaper and how BTC’s block limitations prevent it from achieving the tenets detailed in the whitepaper. Then, we explained how Bitcoin SV does achieve the whitepaper’s objectives.”

Sean said investors were fascinated: “After explaining the advantages of Bitcoin SV, particularly micro and small everyday transactions, investors saw the value of Bitcoin SV wallets in Mijem’s app. There are 23 million post-secondary students in the USA and Canada, and almost half of that generation wants to use cryptocurrency for real-time transactions. They want to be able to send and receive money from the comfort of their app, in real-time, when they want, without waiting. Bitcoin SV meets their ‘need now/want now’ demands, and adding Bitcoin SV via a wallet to Mijem will make their buy-and-sell transactions seamless.”

Sean added that “We educated investors on the fact that there are already hundreds of companies that accept Bitcoin SV, so students have many companies to transact with, which will grow along with the Bitcoin SV ecosystem.”

ONWARD AND UPWARD!

Looking to build on Bitcoin? Ayre Group Ventures provides capital to scalable, high-growth businesses building in the Bitcoin Protocol (Bitcoin SV) ecosystem. We invest in innovative ideas and projects and support their expansion with our extensive network and industry partners. You can reach us at https://ayre.group/portfolio.

BSV is Bitcoin. Private Equity, www.ayre.group, @RealCoinGeek