Pete Rizzo, Coindesk’s editor-in-chief has made an interesting argument for another way of looking at the valuation of the cryptocurrency market using Facebook as his analogy.
As he points out, Facebook is going through a rough patch due to the fallout from the Cambridge Analytica scandal, which left Facebook with egg on its face after it was discovered that the social media giant was a third-party data provider and had allegedly mined user information for various political groups. Facebook is yet to provide all information regarding these charges, and it is an investigation that is likely to go on for some weeks and months.
However, what Rizzo picked up on is Facebook’s tumbling share price. He wonders if it “offers an instructive example for a fundamental argument: whether the current cryptocurrency market, in which more than 20 blockchain networks are “valued” in excess of $1 billion, is overheated or in a “bubble.”
As he says, to answer this conundrum, you have to ask another question: “how exactly is it possible that Facebook, which collects users’ identifying data and connects them through messaging, is valued so highly to begin with?”
Nobody blinks when you say that Facebook has a valuation of around $500 billion. WeChat in China has a similar valuation. Yet, when we talk about a cryptocurrency market valuation that is just over a billion for the top 20 coins, everyone screams “bubble.” Rizzo believes that this is no more preposterous than the valuations we accept for entities like Facebook.
And, he asks, how have social media networks managed to produce so much value when they basically all so similar? Critics of cryptocurrencies often argue that there is no need for so many coins when they all use the same basic technology.
He goes on to challenge those who think that there are too many crypto coins, by asking them consider the huge number of communications apps available, form Whatsapp to Slack and Telegram. Each has slight differences and as he says, “It follows that all of these social networks have different valuations for at least two reasons — the unique and different make-ups of their user bases and the variety of specific ways they offer users to communicate across the globe.”
It is the same with cryptocurrency and Rizzo finishes by asking us to consider the social media channel valuations and as this of the crypto market: “Why couldn’t similar variations unlock similarly massive amounts of value?”