On Altcoin Valuation

The Myth of Technical Innovation

Talk to any altcoin holder and they will inevitably argue that their coin is the one with the most interesting features. They argue that their coin will revolutionize some industry by doing something that will make the tokens worth more, usually through some convoluted set of hand-wavy incentives. The hope, of course, is that their coin will be “the next Bitcoin” as a result of some new feature and become the new Schelling Point for a global currency.

The Story of Litecoin and Fairbrix

The story of altcoin valuation starts here because Fairbrix and Litecoin are two very similar coins. They have the same proof-of-work, a similar launch date (2011) and the same creator: Charlie Lee.

Mastercoin vs. Counterparty vs. Ethereum

Fast forward to 2013 and we can see another group of altcoins entering the picture. Mastercoin launched that summer, followed by Counterparty a few months later and the Ethereum presale in early 2014. All three were after the same mantle, that of a platform for launching new tokens. Mastercoin was dubiously the first to do a token presale before any product was built, or what we would today call an ICO. Mastercoin’s presale followed shortly after the April 2013 bubble during the summer of 2013. The token would languish for years until the 2017 pump.

I’m not sure what universe Vitalik is in, but where I’m from, 67% is not “small”

The Curious Case of Ripple

XRP was the first token to be entirely premined and launched in 2012. Interestingly, the token languished in the sub-billion market cap range all the way until 2017, when it rode the wave of the Bitcoin bull market to a cool $127 billion market cap at its peak. Somehow, XRP wasn’t a part of the April 2013 or November 2013 bubbles and yet burst through during the 2017 one.

BCH and BSV vs other BTC hard forks

2017 brought on another class of altcoins, which gave an airdrop to Bitcoin holders. BCH was the very first hard fork coin, but it did not stop there. 2017–2018 brought a lot more hard forks like Bitcoin Gold, Lightning Bitcoin, Bitcoin Private and many others which have not fared nearly as well. This is despite many of these coins having better technical features. Bitcoin Private, for example, inherited Zclassic’s shielded transactions (which in turn came from ZCash). Lightning Bitcoin has guaranteed 1 minute block times. Bitcoin Clean uses less energy and Bitcoin Interest gives owners staking income.

Why Altcoin Marketing Works

Marketing in crypto has a virtuous feedback cycle as anyone that buys a token tends to market the token to other people via word-of-mouth much more than any other product. The incentives are such that holders of a particular token do a lot of additional marketing for the coin, essentially for free. Altcoin creators euphemistically call such people their “community” which help promote the coin without any cost to the altcoin marketers. As such, the marketing money spent on altcoins has had out-sized returns.

Altcoin Trends

There are some clear trends on popular altcoins. Most altcoins are created right after a major Bitcoin bull market, going all the way back to 2011. Most altcoins, when they pump, do so at launch and during Bitcoin bull markets, which are clearly times when effective marketing is easiest when new s̶u̶c̶k̶e̶r̶s̶ ̶a̶r̶e̶ ̶b̶o̶r̶n̶ investors come in.

Conclusion

So what does this all mean practically? This is good news for traders because it turns out the technical facts for altcoins don’t really matter! Traders can base their altcoin trades on market perception and not have to bother with any due diligence of difficult-to-understand products.

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Jimmy Song

Jimmy Song

Bitcoin Educator, Developer and Entrepreneur. Book: https://amzn.to/2RSlnTb PGP Fingerprint: C1D7 97BE 7D10 5291 228C D70C FAA6 17E3 2679 E455