APPCOINS ARE ALTCOINS DISGUISED AS STOCKS

NEW YORK (InsideBitcoins) – Appcoins seem to be all the rage these days, and many speculators feel like the price of various appcoins will rise rather drastically as the app gains more users. While the basic idea sounds plausible at first glance, the reality is there is no direct connection between the price of an appcoin and how many people are using the app.
Bob buys cloudstoragecoins
Take the case of Bitcoin believer ‘Bob.’ He’s heard of a new decentralized application for cloud storage. Bob understands that CloudStorageCoin is required to pay for storage on the app, so he purchases some cloudstoragecoins in the original crowdsale that funds the development of the app. He plans to hold onto his cloudstoragecoin as the app becomes popular because he believes the appcoin will rise in price as more users adopt this new method of decentralized cloud storage.
One year later
A year later, Bob has noticed his cloudstoragecoins are worth twice as much as they were last year in terms of U. S. dollars. He’s ready to cash out. After all, the only reason he was holding the coins was to speculate on the price. He sells his cloudstoragecoins on the open market, and the total market cap of CloudStorageCoin declines. This is the key point. There is no fundamental reason for market speculators to push the price of cloudstoragecoins back up to where it was before Bob sold his coins. There is no direct connection between user adoption and a speculator’s valuation of the appcoin.

This post was published at Inside Bitcoins on Oct 9, 2014.