Hey everyone, it’s Whatever Wednesdays again. As usual we’re going to talk about cryptocurrency with the theme of one of the crypto memes “I was told there would be lambos“.
“I was told there would be lambos”
So this meme refers to another meme which is “when lambo”. However, the original meme is “I was told there would be”, which originally comes from the movie Officespace. This was a great movie by the way, probably ahead of its time in terms when it came out.
Basically, this meme refers to all relative newcomers to the cryptocurrency space (which probably includes me, in terms of time frame). The idea is that “cryptocurrency is easy money” and you just buy –whatever– cryptocurrency and wait a bit and boom LAMBO.
To be honest, his may have been at least somewhat true in 2016 and most of 2017. Speculation was wild and “the norm” was to buy whatever hot Initial Coin Offering (ICO) was out for the week at cheap prices and then dump it whenever it hit a major exchange. I can only imagine that many people became millionaires from this tactic. However, this time period also gave rise to all the scams that occurred at the same time, Bitconnect, Onecoin, Davorcoin, etc. Go ahead and google those coins if you want their histories. Also you can google “crypto exit scam” for similar results.
However, the market has matured somewhat in a relatively short period of time. The times of “buy whatever ICO is hot at the time” and then just dumping it when listed on an exchange is pretty much over. Additionally, previously we could see coins like Ripple (XRP) go from $0.10 to nearly $4 in less than a month from speculation alone. While exciting, this is not healthy growth. As expected, it crashed down to Earth and continues to trade at ~$0.70, despite significant growth/progress.
Does this make Ripple (XRP) undervalued or overvalued?
That’s the problem, no one really knows. I think everyone can agree that it was significantly overvalued at nearly $4. However, I think that almost everyone would also agree that it was undervalued at $0.10, despite the high circulating volume, enormous total volume, and XRP tied up in escrow, being released monthly. So then where should Ripple (XRP) be valued?
No one knows. The market seems to think ~$0.70 is where it should sit right now today, but who knows if that is right.
We’re still in a highly speculative market. Even Ripple (XRP) which is arguably the closest cryptocurrency to seeing real world adoption at high volumes, can not be valued.
In fact, no one really knows how to value cryptocurrencies in general. There are no metrics. This is very similar to the dot com boom when we had no idea how to value these companies either. New metrics needed to be created in order to evaluate them. Then if you look at the startup space, in order to value companies you can’t look at their profit sheets because they may not be profitable for many years. There are a lot of startup metrics that are used. However, one that gets a lot of hype for placing a valuation on a company is the ARR (Annual Recurring Revenue) for companies that use a subscription based model. Of course, other metrics related to growth are also important.
Anyways, my point is there are no metrics which currently matter to cryptocurrencies.
- people in their Telegram channel? 2k? 10k? 50k?
- transactions per second (TPS)? 10 tps? 1000 tps? 10000000 tps?
- multiplication in price since ICO? (10x, 20x, etc)
- nodes, master nodes, validators?
None of these metrics matter in my opinion.
I think the metrics that will eventually matter for platform cryptos (Ethereum, EOS, Cardano, NEO, etc).
- profitable smart contracts deployed on the system
- ICOs deployed the system that are still active
- active developers utilizing the ecosystem
- programming languages available to write smart contracts in
- other cryptocurrencies which interact with the platform daily
- project proposals currently active
This is just a small sample of what I think will be important later on. Of course, I’m not an analyst and I’m sure there will be 100s of other metrics. There will be different metrics for different types of cryptocurrencies I’m sure. The other problem is that some of this data may be difficult to get.
The long and short of it is that none of these metrics exist currently because there is nothing to measure.
Let’s look at Ethereum (ETH)…
Ethereum has a lot of smart contracts being built on its system, but I don’t think anyone can tell you too much about whether they were profitable or not, aside from maybe the ICOs built on ERC20. However, it would be nice if someone could tell me that out of the all the ERC20 tokens, how many are still being actively developed. Ethereum probably has the most active developers in its ecosystem currently, but this may change. Currently, Ethereum only allows for contracts to be written in its language, Solidity. If you remove the ERC20 tokens, then I don’t think Ethereum interacts with any other cryptocurrencies at all. Ethereum does however have a pretty active project proposal section on its github over at EIPS.
What about Ripple (XRP)?
In the case of things like Ripple (XRP), its most important metric will be how many $ worth of transactions utilize its token (XRP) on a daily basis. Then, how much does this transaction volume increase on a month by month basis. Those two metrics, combined with speculation, will guide Ripple (XRP)’s value — at least in terms of a digital asset for transactions. However, if Codius makes XRP into a platform, then the above metrics I used for Ethereum will also be in play for Ripple (XRP) as well.
Is there a metric you think will be interesting?
I think the most interesting metric will be “Treasury Daily Income”. Very few cryptocurrencies are looking at how to sustain themselves. However, one model for doing so is that some portion of the fees will be extracted from the ecosystem into its own Treasury. DASH probably has the most well known treasury model. IOHK did a review of it, which you can find here. Of course, IOHK, which is creating Cardano (ADA), has their own idea of a Treasury, which you can find here.
I think the idea of a Treasury is a very good one, because to me it says “we’re playing long ball”. The idea that you can pay people to make your system better on a continual basis means that the system has plans to sustain itself. More so than that, we can deduce a lot of things from “Treasury Daily Income” metric, if it was available.
You could figure out how active the system is and how well it is being used. Then if you compare “daily grow of the Treasury” on an arc of time, you could figure out whether the ecosystem is getting stronger or weaker. Note that this metric is “daily income”, so it doesn’t look at the Treasury as a whole. The reason for this is because the Treasury should constantly be changing in how much it holds, depending on proposals getting funded. As such, the “Total Treasury Amount” will not be as good of a metric (in my opinion).
I was told there would be lambos…
This is unlikely in the near future.
Like the dot com boom, we will need to find new metrics with which to value cryptocurrencies.
It’ll be interesting — but I think the most interesting metric will be “Treasury Daily Income”.
Agree? Disagree? Questions, Comments and Suggestions are welcome.
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