OK, Matt Odell—bless his soul—is clearly not reading MONEY CLASSes, and thus he missed the upbraiding he received the other week (#809392).
Instead, in last week’s Rabbit Hole recap he doubled down on this idiotic idea that there’s a limit to the value of individual assets set by the sum total of all outstanding bitcoin.
Here he is, responding (in gist?!) to a reader comment:
“He [reader] believes that, if bitcoin is the standard and it’s the reserve currency of the world, that you can have a business that is worth more than the total bitcoin supply.”
Odell: “No, that’s retarded; he’s wrong.”
Simple, obvious econ response: yes, of course you can; the price (of financial assets but really anything) is set at the margin, not for the full quantity all at once.
Further explanation: yes, correct, if Microsoft’s market capitalization equals 32 million bitcoin, obviously the entire set of outstanding shares can’t “fit” into the full amount of outstanding money. That is, using all the money in the world in an on-chain transaction (let’s pretend they can all fit) can’t pay more than 21 million (ignoring that some coins are lost), meaning nobody can “pay” something worth 32 million bitcoin ever. Thus, asset values can’t reach that.
But that’s a stupid take and, more importantly, doesn’t matter.
Nobody is transaction the full number of outstanding Microsoft shares all at once. Only a small portion of shares of publicly traded companies trade every day and obviously the sum total (the meaning of the word "market capitalization") can be worth whatever in relation to bitcoin.
Now, Odell’s intuition here is directionally correct, I think: If bitcoin is the reserve currency of the world, it will have won and will thus have eaten all the monetary premia of other assets (#830458). If so, Microsoft won’t trade at this extreme point since a lot of the reason for holding Microsoft share—including demand by pension funds and index funds etc—would be eaten up by, and transferred to, bitcoin.
In that sense, I believe he’s right, but even then there’s no reason why a certain asset won’t achieve a specific market capitalization.
The analogy I used in the Microsoft/Wealth post (#809392) was that of a city or number of commuters vs the size of a bridge. The height of the skyscrapers and the number of inhabitants isn't limited by the number of lanes on the bridge entering the city: "A functional bridge connecting two cities doesn’t need capacity for the entire fleet of cars and pedestrians to cross at the same time. It's enough that just some small share of all the cars can fit through."
So yea, somebody needs to get this in front of our beloved Odell—and then have him apologize for his silliness.
That's today's little money lesson
Peace,
/J