How to estimate a valuation on a Crypto Currency

in life •  8 days ago

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How to value a crypto coin seems like the million bit question? Here is what i do before i acquire a new coin, steps in order of importance.

  1. SUPPLY - How does the coin inject supply into the network?

There are three main types;

Proof of Work - The coins are created through a network of computer "miners" that require initial capital to build the computer and constant electricity to run. People who invest in equipment and power to mine, have a pay off period and its not immediate, thus creating a pool of people that a vested interest in the success of the coin. BTC, LTC, ETH ect.... If network hash power is going up, likely the price is going to follow...you can look up exactly how much it takes to mint a coin for that day, and add a margin to that price as miners don't work for free. As hash power goes up so does the amount of resources it take to create a coin, and new miners investing waiting for their return.

Proof of Content - The coins that derive value from content that users create like Steemit ! If the user base is increasing the price will likely follow.

Proof of Stake - The people that hold the coin essentially have a vote on the network, the long term success of these type of coins are yet to be seen and largely unproven but are getting there with time. The issue here is the 51% problem if one entity holds 51% they could manipulate coins. More risky than the two other options.

Don't invest coins where the supply dramatically favors the dev team, is controlled by the dev team, or not clearly laid out in the whitepaper.

  1. LIQUDITIY

Once the a coin passes the above test, liquidity is where the value per coin lies. How much total value will people need to use the coin in their day to day lives. For example lets say there was a coin that had a total supply of 100 coins and people used them to exchange 100,000 US dollars of value every day. Each coin would have to have a value of roughly 1,000 dollars a piece... 100 coins x 1,000usd = 100,000usd worth of liquidity to transact daily.

This brings up two questions to answer how many people do you think will use the coin and how much value will need to be transacted daily. If you measure current fiat currency transactional volumes its around 5 trillion USD per day, so the current 800 billion dollar market total of cryptos is not going to be enough liquidity to replace, we need more coins or better yet more value attributed to each coin to replace the current forex financial system. Market cap in the crypto space is not as important as necessary liquidity. They are somewhat but not directly related as you never really know who is holding and who is trading. The exchanges in theory could be exchanging the same million BTC's everyday.

The way i look at it, does the coin replace a current system, does it solve that problem better, and will people prefer to use them and create demand. What are the numbers for the current system its replacing.

  1. DEVELOPMENT TEAM

More traditional way of looking at coin, do your research and investigate the team. Does it really even have one? Some don't and thats not necessarily a bad thing but the ones that do is like free info to look up.

If they don't have a published dev team crypto coins are largely open source, this allow anyone to inject a network upgrade or fork the chain if the users vote with either their coins, or their miners. Essentially a working democracy, more power, more votes, and certainly some entities have a huge amount of voting power. The entities with the most mining power also have the biggest stake in the coin success, and should do whats best for it. We could go down a rabbit hole on that statement but theory is there.

  1. MATH

The above three steps can get you a rough estimate of a coins value based on current information.

For example;

  • What industry do you think it will replace or supplement = Forex markets
  • Whats the current value of that industry traded daily = 5 trillion dollar
  • How many coins are in the total usable supply = 100 million

So each coin needs to be at least $50,000 (traded value/supply) , if its a POW coin layer in how much it take to mine that coin and you should be close.

Always stay diversified, lots of innovated coins to come!

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Too basic I think. How would you apply this to Steem? And what value do you get?

Thanks for this, it will sure beof great help in this crypto era.

Thanks for this educational post.

I like your math where you look at the market cap of the market they're trying to replace or supplement.

I want to say that you should also check out a few good websites that are known for doing solid reviews, Hacked.com is one (although you gotta pay 39 bucks a month for full access) that has Ben refining they're scoring models for a while now and have made me plenty of money.

Coincheckup is another good site and they measure all the metrics.

Lastly but not least make sure the white paper is not copy pasta. Red flag right there! I lost over a thousand US Dollars on Droplex, because I bought into the hype and didn't even check their white paper. If I had done some digging I would have found out pretty quick they are a scam.

Overall good article. It's important to have an idea of the potential Market valuation before you go in thinking you'll have unrealistic gains!

Cheers!
CryptoTrucker

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Thanks for the coincheckup tip!

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Np. Coincheckup and coinmarketcap are a like the Super Duo!

Know of any other good tools we'd be interested in?

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I use coin.fyi, but I think coincheckup can do what it does anyway.

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Do you just post that same comment on every post? lol

At least add some value to the community like I have been doing: https://steemit.com/bitcoin/@investingtips/bitcoin-to-crash-again-how-to-trade-an-expanding-triangle-tutorial

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Good response

This is a very useful post for anyone like me who honestly doesn't know jack about crypto currencies, thanks for the quality posts :)

you forgot to add the technology behind the the asset

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Agreed

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yea this was more focused on a traditional way of evaluating the value of coin and towards a new comer to crypto space. The technology behind each coin is certainly part of how its going to create demand for itself, but if your new to this just look at what industry its targeting to replace. Each coin is so dramatically different from a technological perspective, i will follow up with an new post focused on the backbone technology piece.

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Great , thanks i look forward to reading it.

Nice approach, I also search for scam, like if there is coin xyz, searching for ' xyz scam' . Besides already mentioned coincheckup.com, also bpeindex.com is a nice source for getting a BTC price equivalence.

I am new at Steemit, would love to vote for your blog, but do not know yet how :-(

Nice piece. Please follow back and comment. @juliansamuel

A great beginners guide to analyzing a crypto/Altcoin for investment. Seems a natural followup would be an article on analyzing market trends, once you've invested, to know the best times to buy more or sell off and take profit. A good lay-person language article like this would be very helpful.

保持多样化才是重点

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Absolutely is, exciting times

I use all of these signals except on Ripple because the market cap doesn't mean anything with Ripple, I created my first ever post which I think people will find funny to read. Could some people spread the word :)

I quit my high paid job yesterday to do this so am a bit worried haa.

https://steemit.com/bitcoin/@cryptoadviceltd/quit-my-job-yesterday-my-honest-journey-in-cryptocurrency-the-highs-the-lows

what about the technology behind the coin ? its what that coin
actual value financially the asset only as good as the people working on developing it and the technology behind it .

Whenever the price of cryptocurrency is rallying, people start spending a lot more.

Learn to enjoy every minute of your life. Be happy now. Don't wait for something outside of yourself to make you happy in the future. Think how really precious is the time you have to spend, whether it's at work or with your family. Every minute should be enjoyed and savored.

I'm much more confident with crypto than with banks or fiat currency because I can actually control it, and the money supply is transparent, stated up front. It makes online shopping a lot easier and a lot safer.

Super channel.
I also invite you to my channel, about the cryptocurrency market :)

I strongly agree with you on the math part...
but the most important fact to analyse is the team and the philosophy of the currency
what are they seeking and what is that used for...

Thanks for this great post, I learned a lot from it, I'm new to Cryptocurrency and will follow you for sure.

Hey thank you super interesting. Do you have any thoughts on Burst? my understanding is that its a fourth way to supply, not proof of work, stake or content but proof of space. What i get from it is that's its using free data storage on people computers to mine. Does anyone have an opinion on it, im curious

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From what i know of it and certainly do additional research. It is POW coin because it takes hardware and electricity to mine them, even though its not "processors". Using storage instead of video cards or asics that still cost resources as that storage is not free people still have to pay to run them. It is a limited supply as well and that makes it a low risk coin and certainly worth having some.

I am a huge proponent in diversifying your portfolio, little bites of allot of coins bought over time.

your post has been promoted by @team-solutions.
Thanks for the great content. This is not a Bot btw.

A very good research, one needs to be careful and invest only on coins with strong background so and prospects.

Great post. I will come back and share with my sister-profile,
@team-solutions

Thanks! Very good article especially for newbies like me with practical examples and figures :)

Interesting

Gold actually has properties - you can use gold for all sorts of things. People value gold for the metal. Nobody values bitcoin for the bitcoin; they value it because they believe that they can exchange it for something else.

nice post!

Let’s not forget that coins with attractive design and name. Even though there are coins and token that attracts the eye like candy, it would be a good idea to start making the coin/tokens of corporations to even out the playing field. Proof of stake by the people and for the people!

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The problem with proof of stake is the rich get richer and the poor stay poor. Kinda like the current system we have.

Interesting Read. Market Cap = Supply*Pricw

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Yes that is the calculation... however that is only measuring what someone at an exchange will pay for one purchase at one time and then multiples that feedback into the entire supply. It a metric that has transferred over from traditional valuations for a company, generally companies that own hard assets. If you want to understand the projected value of the coin liquidity is a more relevant metric. I should preface that when i reference "trade" in the above, i am referring to trading value in the sense of using the coin in the real world for its purpose not "trading" the coin on exchanges, or the value of the coin on an exchange.

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These are great points for newbies. The concepts are necessary for understanding but the real value lies in being able to explain it clearly. Could you post this (with any updates) over on fyreum.org This could really help some people make better decisions.