In the previous articles (Part 1, Part 2) we looked at the initial stages of a framework for analysing crypto projects. The goal being to determine if they are a good fit for my goals and portfolio as whole. The target projects I am considering are actually those that I have a small token holding for already and am keen to see if these make sense to Hodl, Sell or Consolidate. So far (using the Electroneum project as a guinea-pig) we've considered Community/Development, where the score was 2.6 (out of 5) and have consider the Track Record, where it achieve 3.5. This time we'll look at the next stage in the process "Cost/Value".
As with the previous article I welcome any feedback/suggestions from readers, particularly if you think there are any gaps in the information provided/used. This is very much a work in progress and an opportunity to look at the vast amount of resources out there. The goal is to try and use these methods to give a bit more of an objective review of a project in order to help make decisions about future investment. Remember that this isn't financial advice nor is it technical price analysis, you'd probably want to get that information from someone more qualified!
Before diving in, I wanted to quickly show the overview again of the process and the grading system. The goal of grading the 4 individual elements is to be able to bring them together to give a general score that can be used to help determine if it is best to Hodl, Sell or Consolidate (HSC) an asset/project (basic framework below).
To achieve this goal we're going to be grading each item that is reviewed on a scale of 1 to 5, then take the mean value of these to give us the element that would go into contributing to the overall HSC-Score.
- 5 - Very Favourable
- 4 - Favourable
- 3 - Neither Favourable nor Unfavourable
- 2 - Unfavourable
- 1 - Very Unfavourable
Category 3: Cost/Value
The first stop here I think is to go to the independent investment rating services offered by Weiss. Using this information we can hope to get experts opinion on the risk of investment within a project. When considering the rating it is important to look at the overall rating as well as the break down for Market Performance. This can be an important starting point as it will give us a look into how potential investors may view a project (while doing their due diligence), which in turn can give us an idea of the foothold within the marketplace and knock on effect for Hodl value.
Looking at our test project (Electroneum), we can see here that the overall score (A) is E+. Note the little green arrow actually means this rating has been upgraded recently (from E, when I started this process). The Market Performance breakdown is split into "Risk", "Momentum" and "Market Performance Grade". For ETN, as you see above this isn't exactly a glowing review as we have Very Weak, Weak and D-, respectively.
Available Exchanges and Trading Volume
Next up I think a relevant place to look is where all the transactions are taking place. What is the trading volume like, what are the top trading pairs, are the listed exchanges recognizable and reputable etc. What we're looking for here is a good picture of the trading activity, we're also interested in possible consolidation pairs (this will be important for considering if we want to consolidate holdings). For this there are a few places we can look, firstly CoinGecko as they usually have a nice summary of the top trading sites and pairs under the markets tab, which for ETN looks like this:
What it would be good to see here is multiple well trusted exchanges trading ETN at a reasonable volume. If you see here next to no exchanges, or very low trust ratings on exchanges for a project then this should definitely set off alarm bells. One of the hallmarks of the OneCoin scam is the lack of trading on open markets. If you're planning on putting money into something make sure you can get it out!
We can check this picture as well using Weiss' site, as they also provide a couple of handy pie charts to give us an idea of where the token of interest is trading and what for. Note here that the Quoine is actually the same as Liquid from the list above. Interestingly, for ETN there is definitely a clear difference between KuCoin here, which does make you wonder which of these is most up to date.
The third place we can look here at possible swap and trade sites suggested by the project team itself. There is a real push in recent months for decentralized swapping of tokens, so just looking at the main exchanges may not give us a clear view of the options so it is best to check if there are other places. The ETN team provide a list here:
Most of these are already listed above, however, a couple that stand out as alternative options are SimpleSwap and CoinSpot. These both open up trading pair options, though with SimpleSwap there is a 9000 ETN minimum trade so it isn't the best.
We should have an idea of where our token is traded, though also (at this point) I think it is good to consider some associated costs. This is where it can get somewhat murky when it comes to making an assessment as we need to factor in a few things. Firstly, the cost of our tokens; were they from airdrop (i.e. free), did we buy in to some sort of coin offering (e.g. ICO), how much have we put in? We also need to consider what the value/return looks like for other investors, for those that did participate in an ICO how are things looking for them in terms of profit? Finally, as we're considering selling/consolidating we need to look at the trading/withdrawal costs. If you are going to pay a withdrawal fee on your fund that is going to take a serious chunk out of the holding then would it really be worth selling? What I plan on doing for this section is considering a favorable rating to be an indication of options and performance, dropping down as things become more restrictive and performance drops off.
Going back to the test case let's look at this relative the ETN holding of 337.35. First off this is a very small amount so that will need to be factored into the exchanges/swaps. It was free so currently I'm out of pocket $0, always a positive. Electroneum did undertake an ICO and they were sold at $0.01, I actually found a really nice summary on ICODrops.com:
Additionally, intotheblock.com gives us a simple snapshot of how folks who are still holding and bought in at the ground floor are doing relative the to average token price (where in=in profit, out=out of pocket).
For the swaps and exchanges I've selected a few of the bigger ones to get decent reference points
- Min of 0.1 ETN but they actually take 5 and then refund what is not used.
- CoinSpot flat 1% fee
- SimpleSwap Network fees only
- KuCoin: 0.1% / 0.1% maker/taker, withdrawal fees apply (BTC 0.0005, ETH 0.01 and USDT 3.3)
- Liquid: 0% / 0.1350% maker/taker, withdrawal fees apply (BTC 0.0007, ETH 0.01 and USDT 1.0)
Chain analysis and Bitcoin Correlation
Another thing to consider when hodling/consolidating could be how closely the token is correlated with BTC. If you have something very closely linked to BTC then when it shifts then chances are your holding shift in a similar direction. Though often with Alt coins this can be much more exaggerated. In terms of grading this part I think it is reasonable to say that a low value/correlation leans more toward a hodl or perhaps sell, where as a high correlation may lean toward consolidation. In addition, we're also interested in any wallet analysis out there to get an idea with what is happening with current addresses, are folks hodling, are the the number of address with non-zero balances increasing (i.e. are folks buying. Additionally, are we seeing large network transactions (what are the whales doing?).
Going back to in intotheblock.com they offer a snapshot of all of these for us.
Historic price Action/ Trends/ Indicators
The final element in this section is focused on historic market price action and possible indicators or general trends. As I said at the beginning of this it isn't a technical analysis so I don't think we should try and do that, though we can look at all the information out there and start to get a "rough" impression of market sentiment and potentially market direction. There are a few different places to do this:
Off the bat this is a good place to start and actually links in some of the other bits. When you look at the main overview on a coin's page you'll see immediately the price action at a few timepoints
We also have access to a great summary of the total volume market cap, price and All-Time High vs All-Time Low.
Over at the Weiss site (as can be found on CoinGecko as well) there is a nice summary of the 90 day performance for a token. Which in this case doesn't look bad at all. If you bought early April you're doing alright on your investment (up 194%). This is more of a short term picture but is a good way to see the price trend.
Now if we want techincal indicators then TradingView is the place to go. Just search for an asset and click on the technical tab. These are also often found as widgets in CoinGecko listings and give an idea of the sentiment based on technical indicators. Though be careful what time frame you're looking at here because as you see below this is 1 day, 1 week and 1 month which can change massively between one another.
Lastly, this one I've found recently is actually the price action with key event dates added to the chart. This can give us an idea of how the market reacted relative to events or announcements from the project team. This could is quite handy for looking at the older events on the calendar and then considering future events. If there is something similar happening then it could give us an indication as to how the market will react. Mousing over the (+) give you planned event and the (!) give the actual date it occurred. For ETN we also know that coming up this month there is going to be a halving so it is worth considering how that could affect the price, no one wants to sell then have the value of what they sold jump up.
Wow, well just as with last time I started off writing this and worrying if there was going to be enough information to complete the article and have been blow away by just how much is out there when you start looking. Definitely CoinGecko is the starting point for this section I believe and ties together quite a few of the elements. Though the other resources (Weiss, TradingView, intotheblock.com, ICODrops.com and CoinMarketCal) were brilliant finds and help give a more well rounded picture.
Let see how our ETN test case did then for all the sections above.
Weiss Rating: 2
Despite the Weiss rating recently having been upgraded the market performance rating is still low and overall E+ really doesn't cut it. The fact that it appears to be moving in the right direct for me at this stage is the only thing saving it from scoring very unfavourable.
Available Exchanges and Trading Volume: 3
There are a good mixture of exchanges here with a few of the well known bigger players. Trading pairs look good for consolidation with the big boys (BTC/ETH) and the addition of the swap platforms make it much easier to consider consolidation/selling. 24 hrs Trading volume value ($) would be equivalent to ~0.6% of the total circulating supply which isn't horrible though to put in context the BTC 24 hrs volume would be equivalent to ~9.3%.
Associated costs: 2
This section is where we need to consider the holdings. The cost of the exchanges make them prohibitive for the amount of ETN I have which limits options. Then the problem with SimpleSwap is the min trade amount. This really only leaves us with the CoinSpot 1% fee. Not ideal but also not going to break the bank. If we think of a 1 here as being no choice but to Hodl and the 5 as being Sell/or Consolidate with ease then I think it is fair we lean more to the former. Indeed, the other indicators in this section also point toward ICO investors hodling on for dear life.
Chain analysis and Bitcoin Correlation: 1
Right now it seems very much as if the network is quiet in regards to bigger players. That isn't necessarily a bad thing but also it doesn't fill us with confidence that there is much momentum to the markets. Correlation with bitcoin is low which is also not bad as this could mean that while BTC is unresponsive (currently) this doesn't prevent the ETN price from moving under its own steam. A high score here would be reflective of correlation and high activity. This one, as with associated costs, really cannot be thought of simply as favourable/unfavourable when considered alone as they may well be the corner stones for the separation between our main potential outcomes (Hodl, Sell or Consolidate). So even though the score is low and therefore will affect the average it may be that some weighting needs to be applied to them in the decision making process for tying it all together.
Historic price Action/ Trends/ Indicators: 3
Finally, we finish up with a bit of a mixed bag. The majority of the technical indicators seem to suggest selling. However, the recent performance (90 days) has seen an uptick which appears to have stabilized over the past few weeks.
Definitely back on the unfavourable side of the coin this round. However, I believe that some serious thought needs to go into this section and whether it needs to stand outside the normal rating process given that specific sub-sections will be driving factors in the how to move forward with potential sales etc.
I think I'm starting to get an idea now of how we can begin to bring this information together. It is looking like potentially a three pillar approach using the Community/Development, Track Record and Active participation scores to categorize the main approach to a holding. Then follow up with this cost/Value rating to help further sub-divide the options. I'm looking forward to expanding this idea, to see if it will work, in a later article.
As with the previous articles, I'm open to any suggestions/ideas. Point out any gaps, or incorrect assumptions, it is difficult to review your own work critically sometimes. If you are aware of any other resources by all means share them.
Hope you enjoyed the article and it gave you some food for thought, good luck y'all!