In fact, company stock is WAY worse, because the majority of people are legally prohibited from investing in private companies unless they're an accredited investor (already rich). So, only rich people (other than founders and early employees) are allowed to buy in at super low prices before handing off the bag to the public.
Cryptocurrency removes the underlying asset and simply sells shares of artificial scarcity. It’s only as valuable as what people decide to trade it at, because it doesn’t represent ownership of anything other than itself.
Is there a limit to how many shares a company can issue? No, a board can technically issue shares unto infinity. There is no guarantee of scarcity, no guarantee they will not raise more money.
That company would have value whether or not it was explicitly sold as a stock. The value doesn’t come from the stock.
So when a company has no profit but a high valuation, is this the market correctly discounting future predicted cashflows and giving a company fair value, or is it some sort of scam? Ex: Is NKLA actually a $5.2b electric vehicle company? How about the spade of Chinese IPOs that ended up being vaporware?
Cryptocurrency removes the underlying asset and simply sells shares of artificial scarcity.
The scarcity isn't artificial. It's mathematically provable, open source and auditable. If you think you can manufacture "fake" btc on the blockchain, feel free to try. If you think you can successfully fork and create a whole new chain, you're also welcome to try.
It’s only as valuable as what people decide to trade it at, because it doesn’t represent ownership of anything other than itself.
This is actually factual for anything in existence. A piece of bread. A $100m painting. You're starting to figure out what peculiar creatures humans are.
The scarce asset is the company, not the shares. Yes, they can issue more shares, but those shares still represent the same company plus the new investment money raised by raising the shares. They're not creating more company out of thin air when they issue more shares.
EDIT: To clarify some misconceptions in the comments below: When a company sells more shares into the market they are not simply diluting away existing shareholders. The keyword is that they are selling shares, meaning they take money in exchange for shares. The company's value increases by the amount of money they take in exchange for the sale.
Example: If a company is worth $1,000,000 and has 1,000,000 shares outstanding, each share is worth $1. If the company decides to sell another 100,000 shares and the market buys them at $1/each, there are now 1,100,000 shares outstanding and the company is now worth $1,100,000 because they took in $100,000 of cash via share sales. Existing shareholders have not lost any money or value.
No. Your shares were _diluted_ by the company issuing new shares. Now your 100 shares are worth half as much. Shares have predicted forward value embedded in their valuation. When you buy a share, you're betting that company will continue to grow. If it's having to raise money and issue new stock, odds are it's struggling with cash on hand. Maybe the bet will work out for you. Maybe not. Stocks are gambling, though, don't let yourself believe otherwise.
That's not correct. A company sells shares in exchange for cash. That cash is owned by the company, which is represented by the shares.
Companies can't simply dilute away their shareholders like you're suggesting. The money raised by selling shares doesn't simply disappear.
Did I get diluted?