What is an Exchange Worth? $20M

in #cryptocurrency6 years ago

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Each additional exchange ads about $20 million to the market cap of a cryptocurrency.

In business and Wall Street there are a lot of different ways to measure value, however since most cryptocurrencies do not have clear revenues, profits or financial statements, it can be hard to do fundamental analysis. They don’t have stores to count or employees to measure so how can we evaluate them? However, there is always one or a thousand ways to evaluate something.

Valuing cryptocurrencies by the number of exchanges they are is like evaluating how rich a person is from the number of cars they have or evaluating the price of a house by the number of bathrooms it has. There is a correlation, but it is loose needs to taken with a grain of salt. This is not entirely accurate nor is it meant to be.

That said let’s take a look at the data and then we will discuss it more.
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This exchange data was grabbed from bitscreener.com and I didn’t clean it up much. The data is a couple of weeks old, but I did delete the currencies that were missing data and any with less than five exchanges. I do not believe this data is fully accurate, but I don’t think it matters for what I am looking at.

There are about 400 exchanges were currencies can trade, how many of the exchanges each coin is on tells us about the acceptance, longevity and use of the coin. Some are accepted almost everywhere others are not. For those top 15 coins with over $250M market cap an exchange is worth about $50 million each. If you remove those the remain 28 on this list are worth about $14 million. The total average is $22.8 million rounded to $20 million because that more accurately describes the data.

Certainly, one can use $10 million for small coins, $50 million for big coins or $20 million for all coins in their analysis.

More Analysis...
It is also interesting looking at the coins and exchanges and seeing which ones might be over or under valued. Both Bitcoin and LiteCoin are on almost 400 exchanges. Bitcoin has a market cap of $97billion, yet Litecoin has a market cap of $3 billion. Looking at exchanges Bitcoin is worth 250 million per exchange and Litecoin is worth 8 million per an exchange. This could mean that Litecoin in undervalued. Dogecoin also has 395 exchanges, yet it comes in at only 285,510 per coin. One might say that it represents an even better value; but that is up to the reader to decide!

I do notice that Bitshares (BTS) is listed at 61 exchanges. I think this count tallied the individual markets on the BitShares exchanges, because it was the Bittrex delisting of BitShares and its fall that made me look at these numbers. When Bittrex delisted several coins they suffered significant 20-50% falls.

Just like different cars have value different exchanges also have value. Some are known to trade more junk and scam coins.

I do think there is some value in the number of exchanges and a measure of acceptance, which is why I wanted to share. I think this should only be a small supplemental part of any strategy. I do think that when an exchanges adds a coin it increases visibility, and the invest-ability. That brings more investors to it. How much value and how quickly, when those are complex questions. Certainly, in the public stock markets companies spend millions of dollars to list on the exchanges both in direct fees and compliance costs. Companies would not do so if they did not believe it was worth it.

What factors do you like to consider when you are looking to invest in a coin?

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