The Markets Are Irrational, Never Short Crypto Even After A 100, 200, Or Even 300% Increase

The markets are irrational

Below is my reply to a reddit comment asking "at what price will you short XRP?"

When that comment was posted on Dec 29th, XRP traded at around $2.00 (plus/minus 0.20 because, you know, this is crypto). At this time, XRP soared 100% from $1.00 to $2.00 within the course of a week.

So let's take a step back and assess this situation through the lens of a conventional observer. 100% gains in one week? Ok, I should short right? This XRP thing has no fundamental value. Banks don't need XRP to benefit from Ripple's technology. All my TA analysis is telling me XRP is overbought. So I should sell or short!

Well... not so fast! This is the wild west. This is crypto!

Fast forward to today and we see the irrationality of the market in action. Since the $2.00 valuation on Dec 29th, Ripple has soared another 75% briefly hitting a $3.50-$3.80 valuation on Jan 4th, 2018.

This valuation puts the total valuation of XRP greater than Google (Alphabet), JP Morgan, and Toyota. And just to add some perspective to this! At the start of 2017, the value of all XRP was worth as much as a single Will Smith. That's right, let's use Will Smith as a unit of metric, because nothing makes sense anymore.

Or as Mike Novogratz puts it...

The way XRP has grown illustrates dangerous and unsustainable growth within the cryptospace. While I agree that the total cryptocurrency spaces will be worth trillions in the future, now is not that time. What we are experiencing is rampant speculation with little more due diligence than "ooo this coin is (nominally) cheap, that's why I'll buy it!"

Before I address what I mean when I say "Ripple is straight up irrational, but I understand why it's going up"

I think it's important to mention that as a person who values fundamentals, use cases, and adoption... the rise of XRP has made me jealous. Yep, I am envious of those who've gotten into XRP and such spectacular gains. I think it would be disingenuous of me not to mention this.

Now on to some objective facts why the rise in XRP is stupid. Really, it's not only about XRP, but any low nominal value coin with a large circulating supply.

Because, what we're seeing now, is the coins with the smallest nominal values and largest circulating supplies are experiencing the largest gains. If coins were really being invested into because of fundamental value, there should not be a correlation between coins with low nominal values and percent increase these past seven days.

But what reddit user @JKadsderehu finds is that there is a trend between coins with low values and large gains.
https://www.reddit.com/r/ethtrader/comments/7o0r4v/coinmarketcap_data_analysis_people_are_mostly/

UNLESS there was some huge coincidence that all coins with low nominal values also were fundamentally undervalued, this trend is certainly concerning.

Another user actually ran a regression on data comparing nominal values with percent gains and found an r squared to be around .4. What this means is approximately 40% of the percentage gains on coins can be explained by low nominal values. Now while this isn't the most advance form of statistics, it's an interesting thought to keep in the back of your head and in fact corroborates some real world conversations I've had the past months.

I've heard on several occasions of people who want to invest in the "cheapest" coin because they have the largest potential to experience the largest gains. Simply visually, an increase of $0.01 to $1.00 is much more palatable than an increase from $1000 to $100,000. But at the end of the day, the percent change is the same.

I guess perception really is everything.