How to determine the quality of the cryptocurrency

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How to determine the “quality” of the cryptocurrency?

How to determine the “quality” of the crypto currency. How to protect yourself from bad crypto currency?

Crypto industry recently demonstrates just amazing rates of popularity among users. More and more ordinary citizens pay attention to this resource and begin to consider it as one of the very promising tools for investing savings in order to obtain a large profit. Against this background, new coins of crypto-currencies began to appear in the network, which mostly work for the blocking technology. Today we will consider such a problem of the crypto-currency market as determining the quality and prospects of electronic coins, as well as the issue of user safety when performing operations in the world of electronic means of calculation. This set of information will allow you to avoid later problems associated with the loss of the fiat and electronic tools, as well as prompt tools for the most profitable investment of money.

What is a crypto currency?

So, considering that the bulk of users do not understand much about the intricacies of electronic payment instruments and understand the processes that are exposed to crypto-currencies, it’s probably worth starting with basics and security issues. In particular, it is necessary to touch on the topic of fraud in the crypto industry and the choice of safe forms of storage and purchase of coins.

Crypto currency is a specialized online settlement system based on the operation of Blockchain technology. In simple terms, any crypto currency is a piece of computer code that is generated by the information capacity included in the system, in which all the transaction data in the system is recorded. Sorry, but there is simply no simple explanation for this tool! Let’s continue, 10 years ago nobody heard about crypto-currencies except for a few advanced IT specialists, but thanks to their anonymity and high level of protection, as well as prospects in terms of development, electronic coins began to gain popularity. And today the main currency Bitcoin shows records of value – a maximum of about $ 20,000 per coin. It is such a rapid growth and the opportunity to repeat the success of crypto optimists attracts new investors in this field.

Against this background, the crypto market began to be flooded with various scammers who seek to earn on the greed of investors and their ignorance in terms of studying the operation of the crypto currency system. At the same time dealers use a variety of techniques of deception from simple and long-known to high-tech and complex. But no matter what tricks they use, their ultimate goal is to take possession of your means. Let’s look at several approaches to cheating investors in the crypto market.

Fake crypto currency

Against the backdrop of the appearance of thousands of electronic coins based on blockade technology scammers came up with a very sophisticated scheme of deception — the issuance of counterfeit coins. No, they do not forge the main currencies, but simply play on the so-called “forks” of known coins or issue their supposedly future coins in the future.
The distinctive features of the forged crypto-currency are such indicators and data:

• Centralization of e-currency – fake crypto coins are issued in most cases by one issuer and do not offer a mining regime. Simply put, it is a program that runs on a specific service, and generates crypto currency code and distributes coins over the network. Such a crypto currency exists exactly until the server is shut down. To get the maximum amount of investors’ funds, scammers actively promote their product and disseminate information and prospects of the coin, after which they quickly close the project.
• Lack of open liquidity – today the crypto industry allows to attract investment funds for various ICO projects, crypto-currencies have become substitutes for shares. In addition, the bulk of exchange platforms allow for the initial placement of electronic coins (Tokensail). For this reason, the network is full of various tokens available for investment and earnings. And this is a problem, as fraudsters disguise their projects under really promising crypto-currencies. Therefore, it is very important to study their liquidity indicators in the issue of determining bad creditworthiness. Fictitious crypto-currencies are usually offered only on one platform with a certain indicator of current liquidity. If you can not compare the cost of a coin on different platforms, then be sure that this is a hoax!
• Closed code Blockchain – the bulk of crypto currency works in a decentralized mode, so very few people know where the servers of the system and the miners that generate coins are located. Taking this into account, openness is the main indicator of the legality and attractiveness of the instrument. This includes not only the openness of the crypto currency code, but also information about the developer of the forms of accounting for tokens and the final emission indicator. This clearly characterizes the legality of the new electronic coin.

As you can see, it is quite easy to distinguish a fake from a real crypto currency, be careful, and you will not fall on the hook of scammers. Now it’s time to learn how to find tokens that are promising in terms of earnings, which can repeat Bitcoin’s growth performance and allow you to earn a fortune.

How to determine the quality of the crypto currency and its prospects for investors?

Investors who considered the prospects of Bitcoin at the dawn of its appearance in free access were fortunate enough to earn a fortune with the most minimal investment. Yes, buying Bitcoin at $ 50 in 2009, you could earn about $ 5 million today. This success of crypto optimists does not bother many novice investors in electronic coins, so they are constantly looking for a new promising coin for investment and quick earnings. Today the network offers thousands of crypto-currencies and every day there are all new tokens that can become exactly the asset that will allow you to earn.
So, how can we find a profitable tool for investing among such diversity? In principle, it is not as difficult as it seems. The main thing is to know the most important factors and indicators that distinguish quality products from pacifiers. We offer you to consider in detail the indicators characterizing the prospects of the crypto currency:

• What is the idea of ​​a new token, what is its innovation and interest? At the same time, evaluate your own feelings that cause the product as a user and try to learn how other network members react to this idea. An excellent option is to choose a new technology that can solve any global problem or issue.
• Mode of using block-technology. The fact is that it is new forms of using this technology that attract large institutional investors, so such products often become record holders for the growth of quotations.
• Evaluate the stage of product development – if everything is just in theory, then investors are not very willing to invest, the opposite is a token, under which there is a prototype or already a ready product that requires promotion. Therefore, we choose ICO crypto-currencies, which collect funds to promote the finished product
• What format of profit-making offers crypto currency – in this case there are several options:

– Redemption of crypto currency by the issuer
– Standard dividends on ICO
– Use of coins as a means of calculation on a special service
– Profit from the growth of the value of tokens and their sale on the exchange market

Here, the choice is entirely for the investor, but it should be noted that the last format for obtaining profitability is recommended only for short-term investments with a short-term perspective, since it offers the maximum level of risks

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• What is the final issue of coins-in other words, how many tokens want to issue a project to raise funds, and is there such a limit at all? In this plan, it is recommended to use ICO with a specific restriction on the number of tokens and a small total amount of coins. Everything is extremely logical: the smaller the crypto currency, the more demand for it, and the higher its value and the rate of growth in yield.
• The ultimate financial goal of the project – if initially the issuer has set completely unrealistic goals – in billions or hundreds of millions of dollars, then there is little hope that he can achieve the goal and become successful. The second point in this plan is how money will be spent. Here, pay attention to the share of tokens in the project costs and the amount of coins that remain to the issuer. If the number of reserve coins remains with the developers of the idea, then this is a project invented only to raise funds, after which the initiators of the ICO will simply drop their tokens in the free market and bring down their value, and investors will lose money.
• How to get out of the project – in simple terms, to whom and how to sell the coins (do not take into account the possibility to sell the crypto currency in the free market)

As you can see, it is not difficult to distinguish profitable coins, the main thing is to take time to study all the important factors of ICO coin operation and the level of its prospects for investment. This is the way today to find those assets that can bring users and investors wealth!

“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”

Here Are 5 Indicators to Determine the True Value of Any Cryptocurrency

When people discuss cryptocurrencies, there are a few key factors which should always be taken into account. Judging currencies on the basis of their market caps alone is no longer a viable option, even though it is still the most popular indicator. There are other factors to take into account in order to get the complete picture. Below are some basic metrics for (novice) cryptocurrency traders to be aware of at all times.

5. Market Cap

Although the market cap itself only tells part of the story, people will always keep a close eye on it first and foremost. It is the reason why Bitcoin is considered to be the “largest” cryptocurrency, even though its “dominance” within the cryptocurrency market is less than 37%. Especially when it comes to altcoins and ERC20 tokens, looking at just the market cap is no longer enough.

4. Maximum Supply

Most cryptocurrency enthusiasts are well aware that most currencies have a maximum supply. In the case of ICO tokens, that limit is known well in advance. However, there are some currencies which do not have a maximum supply, such as Ethereum. This is important to keep in mind, as it means a lot of value will be added to its market cap as long as people are able to generate Ether. Right now, for every new coin, a whopping US$898 is added to Ethereum’s market cap. This paints a somewhat skewed picture of the value of this altcoin, to say the very least.

3. Total Supply

Contrary to what most people would expect, the total supply and maximum supply are not the same thing. In the case of Stellar Lumens, for example, the total supply is 103.5 billion XLM. Even though that is not necessarily the maximum supply, it is unlikely we will see more tokens issued over time. XLM is one of those currencies which cannot be mined and is largely controlled by a centralized entity.

Furthermore, the total supply and circulating supply for such currencies are usually very different, which is another factor to take into account. A cryptocurrency’s market cap is equal to the current price per coin times its circulating supply, rather than the total supply. If the latter figure were used, a lot of currencies would not maintain their current valuations for very long due to an overwhelming supply of coins.

2. Can it be Mined?

When looking at sites such as CoinMarketCap.com, one notices that a lot of currencies have asterisks next to them. This usually indicates that such currencies cannot be mined any longer. In some cases, this has been the case from day one, which often raises concerns among investors. At the time of writing, five non-minable currencies are among the top 10 ranked by market cap. That produces a very skewed representation of their value, which is why ranking currencies by their market cap is not the best course of action right now.

1. Does it Have a Native Exchange?

Although this is an often-overlooked fact, there are currencies out there which are mainly traded on an exchange controlled by the developers. One such example is BitConnect, which sees over 95% of its volume originate from the native BCC exchange. This is quite problematic, as it often leads to price manipulation. Thankfully, such coins are very difficult to come by, but it’s always worth checking to see whether or not any exchange shenanigans are taking place. After all, price manipulation will result in a skewed market cap, further invalidating this metric altogether.

Beginner’s guide to valuing cryptocurrency assets

So you think you’re finally ready to invest in cryptocurrency? You’ve researched the currencies, developed an interest in blockchain technology and read about how to start trading.

Now you want to invest. But with thousands of cryptocurrencies to choose from, how can you determine the value of crypto assets?

We’ll run you through the basics in this post.

Why value?

Before we get into the specifics of how to value cryptocurrencies, let’s first address the purpose and context of valuing assets.

Valuing is what stock market investors do to calculate the fair market value of a stock. In reality, the values are theoretical. They are used to predict future or potential market prices.

And, of course, the purpose of valuing is to provide investors with the information to make investment decisions that meet their goals.

Forms of valuing in traditional markets

There are several common strategies for valuing assets in traditional markets:

  • The P/E method or Price/Earnings ratio is generally the best known of the investment valuations. It follows a simple approach, where a company’s stock price per share is divided by a stock’s earnings per share to find a present value for a stock to determine its future value.
  • Discounted Cash Flow uses a company’s future cash flow projects and discounts them, with an annual rate, to determine a present value estimate. That present value estimate is then used to evaluate the potential for investment.
  • The Gordon Growth Model uses an approach that takes a dividend per share that is payable in one year, with the assumption that the dividend grows at a constant rate in perpetuity.

Challenges of valuing cryptocurrencies

The above examples are approaches to valuing currencies for the traditional stock market—for stocks that represent companies with cash flow, inventory and other elements of the traditional economy.

However, applying these valuation approaches to cryptocurrencies has a few challenges.

First, and most importantly, cryptocurrencies and the blockchain networks that generate them are not companies. They don’t have cash flows.

This presents a few key problems. Notably, because of this, it’s impossible to apply the Discounted Cash Flow approach. The same goes for P/E evaluation, because cryptocurrencies are not stocks that can be evaluated by price per share.

Some people argue that cryptocurrencies shouldn’t be called currencies at all because they do more than exchange value. They’re also not commodities, because they aren’t consumable.

An additional difference is that the crypto market is very young, so there is little data of currencies’ past performance to use when assessing how these assets might perform in the future.

Key aspects of valuing cryptocurrencies

To develop a full concept for how to value cryptocurrencies, it’s important to keep in mind three specific topics: Utility, Scarcity and Perceived Value.

Utility is, obviously, how a coin can be or is used, and its use in the specific blockchain network to which it is related.

Ether, for example, is the currency of the Ethereum blockchain, which has gained success because of the growing value of Ethereum’s smart contract technologies. ETH is required for anyone on the blockchain to execute commands and develop applications, so ETH is a currency within this system.

As Ethereum technologies are leveraged more often and people execute more transactions with ETH, its value increases.

Scarcity is another unique aspect of cryptocurrency. In traditional economies, scarcity and rarity drive the value of an item. Think of diamonds. Or luxury cars. One of the things that gives them value is the lack of them in the marketplace. The same can be applied to cryptocurrencies as they are in limited supply.

Perceived value also drives the relative value of a cryptocurrency. In the crypto marketplace, perceived value can be achieved by various means.

Within the community, value can increase if a project continually meets its stated goals. Or value can increase if people outside of the crypto market see value in a blockchain network. Again, Ethereum is a good example.

And, of course, there’s Bitcoin, in many ways the primary cryptocurrency, often generating massive interest among the general population.

Background of valuing cryptocurrencies

One of the first companies to value cryptocurrencies was ARK Investment Management. ARK was the first public fund manager to invest in a security that offered exposure to Bitcoin.

One of the people leading that decision was Chris Burniske, co-author of “Cryptoassets: The Innovative Investor’s Guide To Bitcoin And Beyond.”

When ARK invested in Bitcoin in 2020, basically no other investment firm thought cryptocurrencies were a good investment. But Burniske and others at ARK, after valuation, recognized that there was potentially significant growth in cryptocurrency.

Approaches to cryptocurrency valuations

What ARK Investments—and ensuing firms and individuals—identified is that cryptocurrencies represent and comprised a wholly unique economic model that required its own form of analysis.

To assess the value of the assets, they developed an approach called the Equation of Exchange. The formula looks like this:

MV = PQ

  • M = Size of the asset base
  • V = Velocity of the asset
  • P = Price of the digital resource being provisioned
  • Q = Quantity of the digital resource being provisioned

Factor analysis

Another way to value cryptocurrencies is to apply the method of Factor Analysis. In the traditional stock market, this valuation breaks down assets into several factors, usually three to six, and groups those stocks into a portfolio.

Bloomberg did a Factor Analysis study where it grouped crypto assets into three factors: Size, Quality and Service.

The Size portfolio included the two most valued currencies, Bitcoin and Ethereum, as well as XRP, Litecoin, NEM, and Ethereum Classic.

The Quality portfolio included Bitcoin and Ethereum.

And the Service portfolio included currencies that provide services, such as STEEM (the currency for the blockchain social media platform Steemit which has a social media functionality) and Iconomi (which enables people to manage digital assets).

Overall, Bloomberg’s analysis found that the Size portfolio tripled, the Service portfolio was the only one to crash, and the Quality portfolio had the most volatility.

The one challenge with applying this approach is, once again, that because cryptocurrencies are new currencies the amount of data that can be used to group coins into factors is limited.

However, Bloomberg’s approach did yield data that showed a relatively accurate snapshot of the performance of crypto assets.

Again, valuing crypto assets is still a difficult task, but some of the above approaches can begin to serve as ways that both investment funds and individual investors can value these assets to determine if they’re the right investment for their financial goals.

This content is not financial advice and should not form the basis of any financial investment decisions nor be seen as a recommendation to buy or sell any good or product. Trading cryptocurrency is complex and comes with a high risk of losing money, particularly if you trade on leverage. You should carefully consider whether trading cryptocurrencies is right for you and take the time to learn how trading works and decide how much money you are prepared to lose.

Providing liquidity for the crypto economy.

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