Any Cryptocurrency Whose Market Cap Reaches over 50% Of Bitcoin Is Overvalued
Translated and edited based on a weibo titled “Why Am I Saying Any Virtual Currency Whose Market Cap Reaches 50% Of Bitcoin Is Overvalued?” by a finance blogger and weibo big V (user who has 500,000+ followers) named Baozoubeiwei (Chinese “暴走北纬“).
Recently I noticed that ETH has already had a market cap bigger than BTC’s 60%, and said that any cryptocurrency whose market cap reaches over 50% of bitcoin is overvalued. I didn’t expect it would bring about so much response, so I’m talking more about it and giving my explanation.
Theoretically, when we discuss value, the more detailed it is divided, the more precise it will be.
Suppose cryptocurrencies are rated on a 10-point scale with 10 factors considered (1. Node; 2. Onchain trading; 3. Offchain trading; 4. Code; 5. Storage of full-node wallet; 6. Community; 7. Media heat; 8. Software stability; 9. Decentralization; 10. POS / POW), 1 point for each factor.
ETH is currently running close after BTC by market cap, so ETH is analyzed,
The importance of full nodes needs no more explanation. There are 11,766 bitcoin nodes, and 28,377 for ether.
In fact, Ethereum not only get the price soared in the ICO boom, more importantly, the number of nodes have also exploded for the reason that 98% tokens produced based on Ethereum must run on Ethereum nodes to stay stability.
In this part, bitcoin vs ether, the score stands 0.4146 to 1.
2. Onchain trading volume
Bitcoin’s onchain trading volume for the recent 24 hours is around 19,554,580,916 USD, and ether 8,645,409,717 USD.
Bitcoin 1 score and ether 0.4421.
3. Offchain trading volume (trading volume by exchanges)
According to coinmarketcap, the recent 24h volume shows bitcoin’s trading volume of 6,863,020,000 USD, and ether 3,463,270,000 USD.
Bitcoin score 1 and ether 0.5046.
On one hand, according to the 2017 reference IMPL commits and merges tweeted by Jameson Lopp, bitcoin is 1,925, and 833 for ether.
Bitcoin score 0.5 and ether 0.2164
On the other hand, bitcoin wins 26,658 Github stars and ether 13,014, so bitcoin scores 0.5 and ether 0.2441 for this part.
Bitcoin vs ether stands 1 to 0.4605 in this part.
5. Storage of full-node wallet
This is directly related to whether an ordinary computer can run a full node for the wallet which is theoretically the securest.
Bitcoin data chain size is 182.71GB, and ether 337.62GB.
Important to note, bitcoin has run for 9 years since 2009, while ether started in July 2015 and run for two and half years. It is believed that soon ordinary computers cannot afford to run a full node for an ether wallet.
So 1 point for bitcoin and 0.5412 for ether.
When it comes to user number, it is difficult to calculate. To get it in a rough method, Reddit subscribers are considered. There are 708,357 bitcoin subscribers on Reddit, and 305,048 ether followers.
One score for bitcoin and 0.4306 for ether.
7. Media heat
According to data from Baidu index (Chines search engine), in the past 30 days, bitcoin is searched for 55,597 times per day on an average, and ether 5,852 times.
Bitcoin scores 1 point and ether 0.1053.
8. Software stability
Bitcoin is by far the most stable decentralized software. Not long ago Ethereum network was so congested that exchanges were forced to disable ETH wallet. While this will not happen to bitcoin. High processing fees can ensure smooth and fast transfer, though bitcoin’s congestion increases, no one dares to disable BTC, otherwise it may cause great panic in crypto world. And it is complained that full node for ether wallet is all bugs.
I’ll give bitcoin 0.5 score and ether 0.1 for this part.
If bitcoin remains strong, it does not matter whether other altcoins are decentralized or not, but once bitcoin crashes, all those altcoins are doomed, and those who create these coins will easily be raided and charged with money laundering and their life screwed.
Ethereum insist hard fork despite the community’s opposition, next time it maybe shift to POS.
This is the decentralization. The discussion on scaling of bitcoin has lasted for so many years, and this is the decentralization.
Therefore, in this part, bitcoin scores 0.5 and ether 0.1.
POW is short for Proof of Work. To put it simple, you want a coin? All right, provide computing power to mine it.
POS, Proof of Stake, means that once you hold coins, you can gain interest from it.
For POW currencies like bitcoin, you can copy its code and optimize it, but you can never duplicate its hashrate.
While for POS currencies as Ethereum, you copy and optimize it, and it may conversely pose threaten to Ethereum, like EOS, it is now in good momentum, and many people think it may outperform Ethereum in 2018.
A weibo user sharply points out the shortcoming of POS, “hashrate is impossible to be copied, while it is so easy to duplicate POS, and all POS currencies will fall into this trap.”
Considering argues between POS and POW are so severe, both are graded low, bitcoin 0.2 point and ether 0.1.
To sum up, the final score is,
Bitcoin score 7.6146 points and ether 3.7843. The score of ether accounts for 49.698% of bitcoin, I therefore draw this conclusion,
Ethereum whose market cap reaches over 50% of bitcoin has been overvalued.
Ethereum supporters may refute there are obviously subjective factors in the scores, yes indeed. But I have to say I’ve already biased to Ethereum, to follow my heart, these two items (stability and decentralization) are much heavyweight and could have taken up 8 points out of 10.
By the way, this is the top 10 cryptocurrencies ranked by market cap in Jan. 2014, can you recall these coins?