A more appropriate way to look into cryptocurrency values.
Saying “the Cryptocurrency market is crazy!” would be an understatement. After the recent bloodbath and Bitconnect shutting down & many people losing their life savings, it is even more evident.
Let’s start with Bitcoin — many people find it hard to understand the valuation of Bitcoin. I don’t think Bitcoin can be a feasible currency because of the price volatility and high transaction fees, but being the first cryptocurrency, maintaining relevancy for all this time, having the limited supply of 21 million, being the poster child for crypto, having more and more mainstream adoption and more people being involved, Bitcoin is more likely going to be an asset class like gold.
It is already called digital gold and much like that shiny gold metal, the value of Bitcoin is what you, me and all other people say the value is. Think of the first time paper currencies were introduced. People were trading with gold & silver coins and suddenly Governments or rulers decreed that paper currencies now represent their most coveteted metal. It surely was hard to adopt paper as money initially. Now think of Bitcoin — instead of a government, people like you, me and everyone is setting the value. Of course this value will go up and down, many times significantly, but its decentralized and controlled and agreed by everyone, instead of the government. You can be nervous that the government or some specific entity is not guaranteeing it, but it is kind of guaranteed by all of us — even the power is decentralized.
However, the price is going to fluctuate since we all are trying to understand the value of it. It is safe to wait and let it all settle first, but when it eventually settles, you obviously can’t have the same investment gains. No risk, no gain. It is your decision to decide if you think if Bitcoin and other coins are the future. If you think it is, then eventually the price will go up, so investing some now can give you some significant gains. But always invest up to the amount you are willing to lose.
Sources: Marilyn Monroe’s photo and Bitcoin’s image. Quote.
I personally think Bitcoin price will eventually go up because I think it will be eventually considered the digital gold. Gold’s current market cap is $7 trillion now and Bitcoin is around $250 billion. Do the math to see how much growth it can possibly have even with a fraction of gold’s price. Just to add, many people argue gold has inherent value, you can hold it. Gold really has no inherent value, there are many other precious metal which are also limited in supply, but they are not as valuable as gold. The reason gold has the value of gold is, people for centuries accepted it as valuable. Similarly, I think, Bitcoin is on the way of being accepted as digital gold.
Next, let’s talk about alt-coins. We have all these different coins for different purposes. We have one coin to buy electricity, one coin to buy solar energy, another coin to buy internet ads and multiple coins to watch porn. This is not feasible, practical or useful. Most of these coins, I think, are going to be extinct and so will be your investment if you are not careful — you don’t want to be like people who invested in Bitconnect or the people who invested in this porn coin. I think there will be a crash like the dot.com bubble, where many of these extraneous coins will go away, but cryptocurrencies are here to stay. After the dot.com bubble all technology companies didn’t go away and in many ways resulted in companies like Amazon, Google, Apple, Facebook, Microsoft, Uber and more, where only the best and useful survived and became the most valuable companies in the world. Similarly most of the current coins will go extinct and the eventual market leaders might not be here yet either!
“Be Fearful When Others Are Greedy and Greedy When Others Are Fearful” — Warren Buffett
Photo: Business Insider.
This is one of the famous quotes known by many traders or told to new traders. We need to understand when you really can be greedy when others are fearful. If you dig a little in to how Warren Buffet invests, it is based on fundamental analysis. He will only pick the stocks which has good potential and long term values. If it doesn’t have fundamental values, he doesn’t even bother to trade that stock. Now when you know some stock or coin has good long term value, it doesn’t matter if there is a short dip in price for that stock. Knowing it has a great long term potential, a dip in price is a Christmas sale for you (one we just had and still on a decent sale!), so will make you even more excited and greedy. Doing fundamental analysis is very important. If you follow Warren Buffett’s half advice, unfortunately, you are not going to make half money. You might lose it all.
With so many new traders in the space trying to make quick money, it is evident they are losing fast because they don’t have resources to understand the complexities of crypto very well. We, at Coining.AI, were thinking of building tools that can help new traders understand if some coins are overpriced or undervalued, so that they can wisely invest in solid coins. For this purpose, we have built a series of tools.
Normalized Coin Price to identify overpriced and undervalued coins
- Normalized price is calculated considering the same number of coin supply as Bitcoin. This gives a good understanding of the price you are actually paying for the coin and if it is overpriced. If the normalized price is unexpectedly high for a coin, it is likely to fall sometime soon. Calculation inspired by this article, written by Eric Wall.
- Rank difference is the difference in ranks based on market cap (calculated based on circulating supply) and normalized price (calculated based on maximum supply). Utilize it to find which coins are significantly overpriced but not evident because of calculating market cap with circulating supply. Negative value also means it has a lots of supply and positive value means the difference between current supply and max supply is less, i.e. there will be more demand sooner.
- Volume percentage is the percentage of volume with respect to Bitcoin’s trading volume. This gives a good understanding which coins has good volume / liquidity. You should consider higher volume coins for long term or general trading. Low volume coins could be good for quick gains in short term, but might not be good for long term or you could even get stuck even on short term.
- Stay away from low volume, overpriced coins, where rank difference is significantly negative or normalized value compared to your known coins doesn’t make sense.
Screenshot taken January 15, 2018
For example, in this screenshot, the price of this coin called E-Dinar Coin is $690K per coin, if they had the same supply as Bitcoin (21 million), whereas Bitcoin is at $14K. Similarly, SolarCoin valued at $8616, when Ethereum is valued at $9259. And Ripple is $8580, when Litecoin is $952. Given your known coins, you can compare the normalized price to understand if some coins are overpriced (e.g. E-Dinar Coin, SolarCoin) or if some coins are undervalued (e.g. Litecoin in this screenshot). People are mostly fooled because of low price per coin, but they are not thinking about the coin supply.
Next thing to look at is the rank difference. coinmarketcap.com is a great resourceful site. But one problem with its market cap calculation is, they consider the current coin supply. The problem with this is it is hard to calculate for novice traders, and even for expert ones, to understand the true price they are paying for the coin.
- Normalized price gives the true price and ranking of coins in that sense.
- Rank difference is basically giving the difference in market cap rank and normalized price rank.
- Negative value means, there are a lot of coins not currently circulated, this means the price is going to go down when the market realizes it. With lots of supply left the price will go down sometime soon. If you made good profit, you should try to take out your profit periodically and as much as possible.
Finally we add trading value as the percentage against the Bitcoin trading volume. This gives an easy to interpret number to understand which coins has good trading volume. Going back to E-Dinar Coin, it has 0.0025% volume compared to Bitcoin, but the price is significantly high. This by itself is another red alert. If the really overpriced coin you are buying doesn’t have a good volume, you are basically stuck with that coin and will be hard to sell it a decent price. Try to avoid low volume, high negative rank difference coins.
Top Coins based on Market Cap, trading Volume and Normalized price
The next tool is showing the top coins based on the combination of market cap, trading volume and normalized price. Combining all the metrics, it gives a much better sense of the coin rankings. You can also understand if some coins are undervalued now, e.g. Litecoin in this screenshot. The main purpose is to find out top coins for long term investments. Here are the top 15 coins based on all three metrics.
Screenshot taken January 15, 2018
*Edit: Good buys were not originally posted in this article. We built it afterwards, so added in the article later.
Prospective short/medium term good coins to buy based on high trading volume and lower price.
http://coining.ai/goodbuys.html
- Prospective good coins to buy are coins with very good trading volume, lower normalized price and currently outside of top 10 in our ranking.
- We rank the coins by combing normalized price (lower the better) and trading volume (higher the better). We also filter out coins below a trading volume.
- These coins are a good short-list for consideration of short term to medium term gains, since they have very good potential to increase in price.
- You MUST do your fundamental research to find out if its a good coin to invest.
- You also want to do some technical analysis to find out if its a good time to buy the coin, e.g. you can use RSI, Boolinger Band, MACD or some other indicators. You don’t want to buy them when it has the highest price and the price is going down. Learn these technical analysis to make better decision on when to buy or sell.
Screenshot taken January 20, 2018.
Prospective alt-coins with low price and potential to increase in price
http://coining.ai/altcoins.html
The idea of the final tool is kind of against the other tools we have. In other tools we are trying to show people which coins are overvalued because people are not noticing the maximum supply. The idea of this tool is, many people are not going to notice or understand maximum supply, all they will see is the price of the coin. This is a symptom of market psychology (nicely explained in this article, written by Panos Mourdoukoutas). This tool is to help find those good alt coins which can have some significant gains because of this price benefit, but we try to filter the garbage coins by considering the trading volume. Because of that E-Dinar Coin will not show up here even though the price is less than $1.
Screenshot taken January 18, 2018
With this Coining.AI tool we suggest to use maximum caution because the price of these are misleading because of significant maximum supply. However, if some coins have a good team, and a good product they can definitely increase in price. Let’s take a look at Cardano — it doesn’t have a product or usage like Litecoin, but the price and market cap is significantly higher already. This kind of gives little room for increasing with Cardano, rather it could possibly decrease. So consider the market cap and normalized price in to the calculation to find out if this has the potential to increase in terms of market cap and normalized price as well.
These tools will help you get a sense of good coins, overpriced coins or undervalued coins. But you need to do some research on the coins to understand if they are solving new problems, instead of just having another coin for doing some redundant things.
There are a lot of more exciting things coming from us here at Coining AI. Check out our website for details, follow us at @CoiningAI and join our wait list from http://Coining.AI, if you are interested.
Final Tips: Always invest what you are willing to lose, be an informed trader, periodically take a portion of your gains in fiat money, hodl a portion for long term and most importantly have fun!
If you enjoyed this article, check out our next article: Safer investment strategy: Don’t shoot for a Lamborghini, shoot for a Tesla instead! How To invest better utilizing http://Coining.AI price tools. http://bit.ly/CoiningTesla
Happy Coining!
Naushad
Coining.AI
P.S. Not responsible for any trading loss. Please consult your financial advisor for suggestions.
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