Myth vs. reality: Bitcoin vs. stocks

Market capitalization is a major measure of an industry and the valuation of a particular asset. Market capitalization is the size of a company, or the value of a stock, market or a portfolio…

Myth vs. reality: Bitcoin vs. stocks

Market capitalization is a major measure of an industry and the valuation of a particular asset.

Market capitalization is the size of a company, or the value of a stock, market or a portfolio of financial instruments, often including stocks, bonds, real estate, commodities, exchange-traded funds and commodities futures.

Financial markets create a measurement of a firm’s value. The prices of these investments, measured by the prices of derivatives based on those financial instruments, determine how much money a company can raise, pay dividends or invest for growth.

This analysis makes sense: You invest your money in a stock, sell a certain amount of that stock, and then reinvest the proceeds for future growth in the stock.

This may not make much sense to many people, and there is nothing particularly objective about it. A stock is not really any more of a piece of property than is an apple or a blade of grass. But over time, this is just what happens: By investing in the stock of a particular company, you own part of that company’s future success.

Bitcoin goes one step further, with the blockchain itself acting as a vehicle for the transfer of ownership of the asset or assets. Instead of using a bank to lend you money, it is your bitcoin, and your payment for lending it to a bank is just that.

Another important difference between stocks and crypto is the demand for each. The price of stocks fluctuates wildly with the whims of the market, which may return later when investors believe demand is up or down, for example.

Coinbase runs an online exchange where individuals can buy Bitcoin and other cryptocurrencies, and Coinbase stores a version of the price of every item that a user signs up for. A user can also watch the price over time, or sell a portion of his or her holdings.

With Coinbase, this makes the thinking process around the investing and price of cryptocurrencies much more transparent. The underlying technology is many people’s idea of a magic trick: A computer server with an endless stream of transparent data.

The increasingly popular cryptocurrency isn’t the only new way to buy and sell shares. There are numerous other pre-established exchange markets, usually with securities board licenses, where people can buy and sell stocks or stocks of companies.

A better way to think about cryptocurrency is to see it as the natural extension of the concept of “stuff” or “stuff,” i.e., bitcoin the software.

Material from the Associated Press was used in this report.

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