Difference Between Trading Cryptocurrency And Common Stocks

One day, a friend ask, if one could justify the price of stocks by the value of its company, how do one judge the value of Bitcoin? There are no price/earnings ratio.

Like fiat, Bitcoin derived its value from public trust, and speculators and investors willingness to bet on its future. Except, it's not controlled by a government. Yet, as a medium to exchange for goods, we can't treat it more like a stock than like a fiat. Government control fiat to be stable, because human likes stability; but without a government, Bitcoin can't be stable, so only speculators and investors trade in it. But let's not forget that Bitcoin is a coin, a currency, not a stock equivalent.

There is one type of coin that acts like stocks though. These are the coins minted by DAO. DAO, where the "O" stands for "organization", acts like a company, hence it has an inherent value. Hence, we can relate its coins to the DAO's value. As stock doesn't reflect a company's value, DAO's minted coins also don't reflect a company's value, hence it tends to have overvaluation and undervaluation. At least, that's how one sees it. One doubt, with a coin that replace its stock, a DAO still have stock; but one don't know. DAO varies from DAO to DAO, and perhaps some board of directors might decide to have a DAO creating stocks, even though one don't see the point.

In conclusion, trading Bitcoin isn't the same as trading stocks. One trade stocks because one see the undervaluation of a stock price compared to the value of the company. One trade Bitcoin because one believe it'll rise in price in the future, when it's being undervalued. Probably a whole new field of investment are to apply to Bitcoin; yet, some of the current investment principle, especially those that relate to self-control (patience and wait), applies in all situation, regardless of how the trading is done.

This article is first written in read.cash.

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