Cryptocurrency Value Based Off Speculation

Cryptocurrency value based off speculation

How to Value Bitcoin and Other Cryptocurrencies

Cryptocurrency is a fascinating world and like many other fanatics, I continue to analyse where the true value lies.

Blockchain, the technology cryptocurrencies use, has a clear place in this world and will continue to transform governments, companies and industries globally. However, cryptocurrencies still divide opinion on whether there is a real need and value for them.

They do and will always remain the first beneficiaries of the blockchain technology, born from the same pioneer.

It is September 2017, there are over 1,000 cryptocurrencies which collate to a market capitalisation of approximately $150 billion. Bitcoin was the first digital currency and equates to approximately half of the market share.

Cryptocurrency value based off speculation

To put this value into context, the market cap of Netflix is approximately $90 billion.

Purchaser Profile

Before these cryptocurrency companies are built, funding is raised by an Initial Coin Offering (ICO). This allows for investors to purchase the currency at a pre-product development stage which provides funds for the company to build their product. These cryptocurrency holders can be considered necessary.

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They act as venture capitalists for the company to develop and carry the subsequent standard risk/reward ratio involved with that investment. However, more legislation around this funding strategy is required.

Miners are effectively programmers that verify the algorithms that all data within a "block", transaction or other blockchain event, is correct. These miners are rewarded with the currency of that blockchain. Miners are required for blockchain technologies to function and prosper.

We can therefore consider this profile justifiable as a cryptocurrency holder.

The final profile of a cryptocurrency holder is a trader. A trader is anyone who buys the currency with the objective of selling at a profit.

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This profile has a tendency to not hold a general interest in the product the company is creating. This profile accounts for a vast majority of the market cap and will increase significantly as cryptocurrencies become more mainstream. This profile can range from a 18 year old from any country in the world to a sophisticated investment fund.

This is the profile that is most worrying and leads to labels such as "bubble" being allocated against the term cryptocurrency.

Let's look at some examples

Lisk is a cryptocurrency with the objective to create sidechains to the blockchain and also allows digital application development via JavaScript.

Cryptocurrency value based off speculation

Lisk is a top 20 cryptocurrency with a market cap of around $700 million at this time of writing. At the end of July, the market cap of Lisk was around $200 million. As of today in September 2017, Lisk still does not have a product on the market. Therefore, where does this two month 250% increase in value stem from if there has been no advances?

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Lisk has been active in its social media with updates on its product development, its hiring strategy and participating in many global blockchain events. Is it fair to say that this increase is down to pure speculation? Traders are constantly using hype and speculation to drive these prices to unfair values which leads to the use of the "bubble" word again.

In contrast, Factom is a company that strives to develop auditing and storage solutions for documentation and other records.

Factom is heavily backed by Bill Gates and major investor Mark Draper.

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As a cryptocurrency it sits in the top 30 with a market capitalisation of approximately $200 million. Factom like Lisk, does not have a product on the market but insists that they will not create hype or implicate the value of their coin via the use of social media.

Cryptocurrency value based off speculation

Can we take this price to be its true value? Have they managed to avoid the traders until now?

Cryptocurrency value based off speculation

Given the decentralised nature of the blockchain and cryptocurrencies, there is no insight that allows us to answer these questions.


Regulation remains the biggest threat to cryptocurrencies. Fiat currencies have been centrally controlled by governments since they were created in the 11th century. Gold is a natural resource and therefore holds its value due to its limited amount. Cryptocurrencies differ to both of these which leads to the question; will governments allow for such a lack of control of these currencies?

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The answer is NO. However, such is the early stage of cryptocurrencies and the difficulty of their decentralised nature that governments have yet to find legislation to control their continuously increasing value.

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The day they do, whether this will lead to a burst in the bubble or a further value increase in the market, remains to be seen.

The Chinese government took a strong stance this month with the immediate ban of ICO's.

Within hours of this public statement the cryptocurrency market took a dive from $175 billion to $140 billion. This decrease redefines the volatility of the space and the dominance that traders are playing in these markets.

There are also rumours being spread globally that China will also ban exchanges where all cryptocurrencies are being traded.

Cryptocurrency value based off speculation

This would be a bold statement and one that gives the government time to analyse, plan and implement the required legislation for the industry.

Considering Chinese trade accounts for 10% of the market, any change will obviously have an impact. It is important to outline that this remains a global problem, it reemphasises the decentralised nature of blockchain and the future issues that could arise.

In the long term, legislation will benefit the cryptocurrency world.

As it stands, arguably anybody can create a 40 page white paper. They could design a road map for the product they will build, create a currency for that product and raise millions of dollars in funding.

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This would be via an ICO without any legislation or rules.

Will we see a decrease from 1,000 cryptocurrencies to just a handful of coins? Will this be bursting the bubble or will millions of cryptocurrencies be developed? We could easily be using facebook coin on facebook, amazon coin to buy on amazon etc?

This could show a real swing in wealth and redefine money as we know it.

I believe at this moment in time we still cannot answer this question.

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It is still too early to judge if they have a long term place in this world. This could be either a copy of the bubble that burst. Let's not forget that the internet did go on to succeed and took its place in the long term. Alternatively, it could be like tulips and the decrease in its value once that true value is understood.