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How to compare Steem with other cryptocurrencies? – 1st part

Good to see today that not only Bitcoin, but also Steem is raising a little. Last year, in the “crypto-inferno” almost all cryptos were falling, before that in 2017, almost all jumped. But in longer term, Steem was, unfortunately, underperforming – fell more, than other cryptocurrencies. In a more positive point of view, it is undervalued and can overperform again in the future, surging more than other cryptos.

Large, mid, small

But, can we measure this underperformance in some way? You can compare Steem with Bitcoin, Ether, Litecoin, EOS and many others, but the answers would be quite different. As you can see in my table from April 12, in the last 12 months, there were very big differences between the price movements of the different cryptos.

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A solution for the measuring the relative price movements could be the use of some cryptocurrency index. Similarly, as the performance of a broader stock market (or a stock exchange) is measured with a stock index. In case of the New York Stock Exchange, mostly with the S&P 500 index, which contains the 500 biggest companies, to be more exact, 500 with the largest capitalization. (Called “large caps.”) But also other indexes are existing to monitor the performance of smaller or medium size companies (“small caps”, “mid caps”).

Question of definition

Which indexes could be used to make comparisons related to Steem? Is Steem a large capitalization cryptocurrency? Or is it a mid cap or a small cap coin? Certainly, it would be a question of definition, but I don’t know any similar category system. I’ts not even clear what is a decent, approved cryptocurrency or coin – due the huge number of “shitcoins” and “deadcoins” (see here).

A large cap company has a market capitalization of over $10 billion. A mid cap company has a market capitalization between $2 billion and $10 billion, and a small cap company has less than $2 billion in market capitalization. At least in the USA, (source: Investopedia)

100? 1000? 10,000?

Can we apply this to the crypto-markets? Steem has a capitalization of 112.5 million dollars at the moment, on place 58 by the ranking of Coinmarketcap.com. If we decide to call the cryptos with more than 10 billion dollar “large caps”, only Bitcoin, Ethereum and XRP would fit. Over 1 billion USD, we find only 13. And with a limit of 500 million, already 22 are in the top category. By 100 million USD, 61 coins would be “large cap”, and among them, also Steem.

But all these categorizations would be arbitrary, individual. And the market is very concentrated, dominated by Bitcoin to 54.6 percent today. An index with a 54.6 percent weight of Bitcoin, would be not much better than make comparisons with Bitcoin itself. And the three biggest ones – Bitcoin, Ethereum and XRP – together have a weight of 71.4 percent.

Other solutions

For all these reasons, I think capitalization weighted cryptocurrency indexes have not very much sense at the moment. An index without weighting, I mean, with equal weight for all cryptos, seems to be a complete nonsense. Imagine Bitcoin had the same weight as Dogecoin (rank 27), FirstBlood (rank 350) or TittieCoin (rank 1472).

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Another solution could be when the weighting in the index is still capitalization based, but weights are capped (limited). For example, no one of the members could have more weight than 10 or 15 percent. In this case, only the largest 2 or 3 coins had equal weight. On the basis of stock market analogues, another option would be to create “sector indices”. Index for all “payments only” cryptos, index for the “media related cryptos” (like Steem), index for the group of “privacy focused cryptos” etc.

In the next part, I’m planning to review the cryptocurrency-indexes currently existing on the market.