Have you ever gone about trying to figure out what your favorite cryptocurrency is really worth? You know, the Bitcoin is worth X, and Ethereum is worth Y, so my crypto must be worth Z exercise? My hopes are that this thread will help us all with that simple, yet not so simple, task. You know what they say, two heads are better than one!
I suggest that the fundamental starting point is determining a relative “peg” to what almost all crypto is traded in (for all intents and purposes), that is to say, Bitcoin itself. For example, on the most rudimentary of levels, if your favorite coin has an eventual cap of say 84 million coins, like Litecoin for example, then you would simply divide the eventual number of Bitcoin by the eventual number of Litecoin, or 21 million by 84 million, respectively, and you’d have your valuation estimate of Litecoin relative to Bitcoin in 25,000,000 Satoshi.
The fact that almost all altcoin trading is done in Bitcoin is only one reason for using it as a relative base number. It is also a mature cryptocurrency with mature markets with hundreds of millions of daily trading volume and billions in capitalization. The free market is clearly setting reliable daily prices that not only serve to value Bitcoin, but also as a solid reference point for alts.
With this kind of a relative assessment basic reference point we can begin to get a bit more objective with our estimates of value that we give our favorite cryptos. Of course, this “objectivity” ends with the basic ratio adjusted valuation itself, and, just as one would expect from such simplicity, there is no explanation for why something is overvalued or undervalued, but at least we’ve got a starting point to begin that discussion.
Overvalued and undervalued should not be confused with overbought and oversold – they are very different constructs with the first belonging to the fundamental analysis of the object being traded and the second belonging to technical analysis of the actions of market participants. When we ask the question why something is undervalued (which will be the key question for us at this time since there still are no examples of truly overvalued with respect to ratio pegged fair value) we are immediately concerned with product and product perception, and management, which in this case we generally call Development Teams.
If the product itself is based on newer, less well known, perhaps even experimental technology, then there would be an obvious reason for why the crypto in question would trade at a discount to fair value, or, as it were, be considered to be undervalued. We might even refer to this as a risk premium and expect a similar crypto based on Bitcoin core technology, all other things being equal, to trade relatively higher.
Another of the key considerations is the Dev Team behind the project. Obviously, a single developer “team” would trade at a notable discount. Take two equally designed coins and put a team of known experts alongside a “team” made up of one anonymous dev, and simple common sense tells us that there ought to be a huge difference in the value of the crypto being considered.
Then there is the issue of delivery, or performance, as it were. This is management related - after, of course, we’ve determined there is a real team at the helm with the minimum prerequisite competence. Is the team constantly improving the product and are issues dealt with in a timely and acceptable manner? Are deadlines met? Or is there overpromising with a lack of real results? Or, worse yet, are there unsatisfactory results in the form of partially working products or even complete failures? Product delivery, when lacking or nonexistent, can be a major reason for undervaluation, just as the opposite is true when great products are delivered as promised like Apple has become accustomed to doing.
Ideas are also critical, but the main idea is already there - it’s called blockchain. As such, we’re really not dealing with new ideas that can cause premium or discount trading, but there are sub-categories of ideas, or niches as I refer to them, that everyone is scrambling for. I’m not sure how much any given niche idea itself can influence in actual valuations – this is more of a delivery issue in my thinking as anyone can shoot for any particular market and it’s the first to get there that will capitalize type of scenario – but it’s certainly something to be aware of and to try and keep in appropriate context within this discussion. Who is delivering best in each target niche?
What about things that taint the image of a particular crypto? Scams? Inexplicable instamines and/or premines? Any shady dealings what-so-ever are most certainly going to cause something to be undervalued, at least long term anyway once the wool is no longer pulled over people’s eyes (it often takes a very unforgiving market to teach market participants that lesson). This is also management related: is the dev team trustworthy?
These are all good questions to be asked when speculating about what our favorite crypto might one day be worth, and to also help keep us from selling way too soon. When putting your favorites to this “stress test”, how do they come out? With shining marks? Is your favorite coin a “5 star” coin but severely undervalued? Or have you found that you are involved in something a bit more suspect? I think the standard advice for the latter is the easiest: get out while you can. However, advice on what you should do with your theoretical outperformers that are currently underperforming is more complicated.
I believe that first and foremost you should share your conclusions – rationally presented objective data based conclusions – with everyone you can. You will be doing everyone involved a huge favor as the better everyone understands the prospects, the less everyone will sell, and, as logic would have it, price, in turn will continue to rise in direct relation to everyone’s knowledge and trend towards fair value.
A slightly more delicate additional action to employ would be that of informing others involved in possible scams about the competition that is doing things right, but you need a strong stomach and real dedication for that. Nonetheless, in spite of the perceived negatives, the person that does this effectively is doing us all a great public service.
Finally, as we move forward educating ourselves and fellow “community” members and others outside our current circles about the real possibilities our favorite cryptos have, let us do so in the positive – there’s nothing that will hurt you more than the internet pissing match the shameful con man will try to lure you into. Take the high road and don’t even go there. Think of it as a word to the wise, and rest assured, the wise will hear you. (To that end this thread will also be a moderated thread with negativity zero.)
With determination, persistence, perseverance and resolve, let the world know about your cryptocurrency’s real prospects! And don’t forget to calmly, yet enthusiastically, TELL THEM WHY! If you’re a real early adopter and not a scammer, you deserve all the rewards you will receive!
And be sure to share it here! OMG, and if you forgot to do that, then where would we be?!?!
