Cryptocurrency Metrics – Are There Any Good Ones?
I don’t claim to be a cryptocurrency guro nor do I play one on TV. But I do know a little bit about basic marketing and business metrics and now that I have recently gotten interested in Bitcoin and cryptocurrency it occurred to me to see if there were meaningful metrics to help me choose among the multitude of cryptocurrencies I’ve encountered in the market.
My thinking was that, ‘If this question comes to my mind, it might be of concern or interest to other newbies in the cryptocurrency market too.”
So here’s what I found (or didn’t find) today. Are there any commonly used terms and metrics that a beginner-level cryptocurrency buyer can use to evaluate and differentiate between cryptocurrency choices?
The short answer seems to me to be, “No…not really.”
Whereas traditional business accounting has such measurements as:
Debt to equity ratios
Total Debt to Asset Ratio
Accounts receivable turnover
Accounts payable turnover
…..I couldn’t find anything similar for cryptocurrencies except one term… “Market Capitalization” or Market Cap.
And even for that term, the definition used for stocks (i.e. equities) can’t be directly applied to cryptocurrencies because cryptocurrencies and equity stock are two different animals.
Whereas the standard definition for Market Capitalization in equities markets is, ‘The amount of dollars per share of company stock times the number of shares’, the most logical comparison I could come up with in applying that definition to cryptocurrencies was, “the current prices per coin times the number of coins in circulation”. I couldn’t find anything more specific.
So, what signals or metrics could or should a prospective cryptocurrency purchaser use?
First of all, it probably should not be just one metric. While market cap is probably one reasonably good metric (of popularity and/or tenure in the market), there could also be other profile factors to pay attention to.
Liquidity, i.e. the number of buyers and sellers in the market could be important. Especially for traders rather than long-term investors. While I did not see the term, Liquidity, listed on any charts, I did see the term mentioned in some coin reviews.
Related terms could be “available supply” and “volume”.
Transaction fees might sometimes be a factor when purchasing cryptocurrency from an exchange. I saw that term mentioned in some reviews of alt coins but it wasn’t listed on any charts that I found.
The term Nodes has something to do with the processing time of buying and selling of cryptocurrency and and that might be a factor for active traders. And I did see the term listed in some alt coin reviews. But again…it wasn’t prominant on any charts that I found.
The term Difficulty has something to do with security issues and transaction processing time and I gather that this factor varies from coin to coin. But again, it was listed in some coin reviews but didn’t seem be a prominant consumer concern. It is related to the maximum allowed number in a given numerical portion of a transaction block’s hash. The lower the number, the more difficult it is to produce a hash value that fits it.
Bitcoin Price Index (BPI) is a term you might come across where the information provider wants to give you a graphic illustration of some particular cryptocurrency factor, e.g. trading volume, market buys or sells per 24 hour period, etc. An “index” could relate to many factors other than price.
Bitcoin Market Potential Index (BMPI) This metric is subjective but could be relevant if the buyer was concerned with a particular market characteristic. An ‘index’ could, theoreticaly, be constructed to help the reader make a conclusion based on those narrowly defined factors.
Bitcoin Sentiment Index (BSI) . This factor is, like the one above, probably subjective but might be valuable at least a relative sense.
Liquidity. This is probably a good term to watch for. And you will see it on some coin charts and reviews. The ability to buy and sell an asset easily via a suitably large community of buyers and sellers is important for liquidity. The result of an illiquid market is price volatility, and the inability to easily determine the value of an asset.
As you can see, there’s not a whole lot to sink your teeth into when you’re trying to understand what a good coin is vs. what a bad coin is. And the problem can be compounded even further when you discover that some coins were not even created for consumer-type purposes.
So what’s the answer?
You just don’t have the same kind of Quick and EZ Guide To CryptoCurrency Riches that you do in more mature subjects (e.g. Bass Fishing, Golf, Learning Spanish). But it seems to me that the best answer is:
Don’t move too fast.
Do as much research as you can.
Ask a lot of questions but be sure you ask people who can respect.
Try to pick your ‘plays’ based at least on what you might have in common with people who’ve made the same play, i.e. if you’re a middle-income working-guy, try to find out what coins similar people have bought (and been happy with). Don’t buy a coin just because some finance guy you read about in some far-off financial capital (who is probably in an income bracket 3 levels higher than you) bought.
Don’t rob your kid’s piggybank. Take the risk from your budget.
The good news is that a rising tide floats all boats and many people have a mix of worry and optimism right now. On the one hand many people are optimistic for the US and world economy (due in no small part to the recent election of D.Trump). On the other hand, more and more people are realizing that old-fashioned money and banking practices are a game they’ll never win and they are starting to see that crytocurrency looks like a viable answer to their problems.
Luckily… it’s early in this incredible cryptocurrency phenomenon and you’ve got time to win big. Just take it seriously. The stakes are very high.
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