The value of bitcoin and other cryptocurrencies, is experiencing a rapid collapse of the courses over the past few days, displayed by various factors, most popular of which is the market capitalization. Some analysts believe that it is wrong to assess the crypto asset at its cost, which is based on the current stock price. Why the market capitalization of digital assets is not a reliable metric?
Manipulation of the market capitalization of the whales
Researchers cryptocurrencies noted that poor liquidity combined with less restrictive rules on many cryptomeria allow the founders and major asset holders are easy to manipulate quotes in market capitalization on sites such as CoinMarketCap. This was during the boom, the ICO last year, when whales to achieve the necessary quotes Pamphili course of certain coins.
In addition, the above example CoinMarketCap, as told at the conference Crypto Event RIW co-founder of United Traders Anatoly Radchenko, the publication of price data of assets not used figures from Asian markets, particularly South Korea, where the bitcoin’s price is usually higher than on European or U.S. exchanges. Although, in theory, the market capitalization should consider quotes from all crypto trading sites. Due to the fact that not all of the data, the value of the coins is not quite true.
Evaluation of crypto-currencies in dollars
The most popular currencies that assesses crypto-asset and its market capitalization, is the U.S. dollar. In this lies a deep philosophical problem: the market capitalization, which is essentially the product of the price of the token and their total number, implicitly evaluates the success of each crypto-draft terms of expected future monetary output. For the industry based on trying to invent a new, completely identical money, or rather, their non-financial form, contradictory to be based and rely on Fiat currency.
Prioritization return on investment on the basis of the dollar helps to create communities of passionate crypto-enthusiasts who plan to make a profit due to the high exchange rate. When the major indicators of crypto-asset real Fiat currencies are very rarely professionals, e.g., software developers or entrepreneurs with their business, which at his desire may promote the development of the industry to make the blockchain and cryptocurrency to the usual, required for all the items of daily issues.
Day traders and imaginary cryptocurrency experts from Twitter, Telegram or YouTube, which gather the audience and to use its gullibility, earn a lot of money. Even in the case that the opinion of the Internet users coincided with the upcoming market news, universal Analytics will not affect crypto-culture in the desired way, not develop it. Another category of current users refers to the pioneers in ICO when each project began to collect Fiat money and create useless tokens.
It is important influence the community to attract investment
Digital coins and their development directly depend on the team that develops technologies and tokens. Professionals work in teams, exploring new area and create your product. All members of the community are not only driven by the desire to obtain his fee, but the idea of cryptocurrency. Of course, not every project and digital asset pursue high goals in the industry a lot of fraud, but popular coins offer new ideas for the decentralization of the economic ecosystem.
The crypto-community, as noted by many market researchers, become more thoughtful and calm. Learned to some extent to distinguish the Scam from the really promising project. So if you want to evaluate a token of any project, it is important to assess the quality of work and team. However, in this case, the price depends on the dollar.
Tools to measure crypto-asset
DeCenter already wrote about how to calculate the value of crypto-asset. Often Takenaka is based on the basic concepts of classical Economics and uses variables of the formulas to obtain the Fiat of value. Therefore, the data obtained is not quite true, because classical Economics does not take into account the unique ecosystem of digital assets.
Analysts famous publication Coindesk propose to measure the cryptocurrency to use a more relevant indicator — bitcoin, which reduces the value of price as measure of value.
After all, a balanced multidimensional representation of the value of the asset includes many objective measures of engagement and interest to each and every crypto project with its own unique coin. Price or market capitalization must be only one of the five selected indicators. Do not forget about the activity of developers, the volume of trading on the exchange, transactions on the blockchain and activities of the community in social networks.
Grid evaluation of crypto-assets from Coindesk. Instead of the usual for many exchanges the us dollar experts advise to use bitcoin, which is indicated by the yellow line. And Ethereum, for example, the blue closed curve. Because of this, you can see how ETH less BTC. Source.
After evaluating all factors, you receive a General image of the coins forms an idea about its nature and what surrounds it. For example, if you look, the perception of zcash for highly distorted in relation to the involvement of developers, which appears to reflect the passion felt by many cryptographers for protection of sensitive data, which is the basis of coins. But the project has very few transactions and very little participation in social networks.
In contrast, the profile for XRP dominates at the expense of participation in social networks reflects the existence of «XRP-army» on Twitter and other media sites. In addition, Ripple develops on their own experience, therefore, recently started to communicate with the community. Because maintaining direct communication with investors and users of the project is one of the main points quality of the project.
Bitcoin based instead of dollar
To measure the value of altcoins, analysts say Coindesk, it is better not in American dollars but in bitcoin. However, some researchers have criticized the selection of the first ever digital asset as a reference for other coins because in this case the status will be regarded as supporting the prejudices of the so-called bitcoin maximalists who believe only in the first digital asset.
In principle, the balance or the average rate of some coins and their weighted average, could reverse the problems with the criticism of the community. But these calculations would be difficult. Furthermore, the absolute evaluation of bitcoin for all five measurements does not reflect the absolute data analysts presented their vision for comparison. Likely that any altcon can surpass bitcoin on any of the five indicators, and then have to assess the parent currency at a lower.
Model where will bitcoin be used as a starting coins to estimate other costs, will be similar to world markets, where there is a lot of currencies of different countries, and to measure the receive data in the same indices, we use the U.S. dollar. It often happens that coins of the strongest economies in the world such as UK pound, or Switzerland is the Euro worth more than the dollar.
For the selected measures at the moment, bitcoin, in spite of his poor performance, is the most popular on the market and currency is the confidence of the community. Probably, in the future, if the dominance of digital gold will change, it will be possible to use a different cryptomonad to assess all other projects.
Of course, this method of building understanding of the cryptocurrency is experimental and carries recommendatory, rather, an alternative initiative for a more comprehensive evaluation of crypto-asset in it is different from the classical Economics of the environment.
At the moment, large institutional investors, as has been said many projects are on the verge of entering the market, it is very important that they postponed its dollar valuation model and recognized that the value of digital assets is not only the market capitalization of the coin. After all, the cryptocurrency market is distinct from the world of classic stocks and bonds and this attractive.