Because there is not much behind the coins - it is quite difficult to say how much this one or that one could actually cost? Is it overpriced or underpriced? What is the potential? Today I thought about a number which could show the price/overall volume relationship. It could be, that this one already exists, but I didn't find anything similar (OK, I didn't searched a lot :) ), so I dare to give it a name "volumetric".
Volumetric sees all coins equal and differentiate them only on their total volume. I also take Bitcoin as a reference - because it is the reference by now, but this can be changed in future, if needed. So how does it work? The total volume of Bitcoin is 20 500 000 coins. The total volume of Litecoin is 4 times bigger, which is 82 000 000.
So taking Bitcoin as reference, if 1 Bitcoin is worth 1 BTC, so 1 Litecoin is worth 0,25 BTC. I would call this price a fair maximum(FM):
FM = (Maximum Volume of Bitcoin) / (Maximum Volume of the Coin of Interest) * 1 BTC
The volumetric then is the relationship between fair maximum(FM) and current price of the coin in BTC. So taking our example into account volumetric of Litecoin is
0.25/0.03 = 8.3
Well, what does it mean ? I don't want anybody to think that this really means something. It's just a number which came from the assumptions that all the coins are equal, which is apparently not, right?
The volumetric however can roughly show few things.
NB! Some things to keep in mind:
So taking Bitcoin as reference, if 1 Bitcoin is worth 1 BTC, so 1 Litecoin is worth 0,25 BTC. I would call this price a fair maximum(FM):
FM = (Maximum Volume of Bitcoin) / (Maximum Volume of the Coin of Interest) * 1 BTC
The volumetric then is the relationship between fair maximum(FM) and current price of the coin in BTC. So taking our example into account volumetric of Litecoin is
0.25/0.03 = 8.3
Well, what does it mean ? I don't want anybody to think that this really means something. It's just a number which came from the assumptions that all the coins are equal, which is apparently not, right?
The volumetric however can roughly show few things.
- Popularity of the coin: The smaller the number, the bigger the popularity. The closer the coin popularity to the Bitcoin - meaning the higher it is. I assume here, that when volumetric becomes 1.0 - the coin would become equal to the Bitcoin in terms of volume.
- The potential of the coin: The fair price could be seen as a projection of the price on the future. I don't think however, that we have to take it straight forward and put a sell on this price. But it has two good points. One - it could cool down some newbies, who have decided for whatever reason that DOGE will skyrocket to 0.5 BTC in near future. The FM of DOGE is 0.000205 - this is the price, where DOGE become as popular as Bitcoin.
- Better comparison of coins: Volumetric is better for comparison then pure price, because the amount of coins is also taken into account. So if we take volumetric of Litecoin, which is about 9 and volumetric of DOGE, which is about 131 we could see the comparable potential of these two coins.
NB! Some things to keep in mind:
- Volumetric is tied to reference coin. While this reference is OK the indicator works as expected. However if for whatever reason Bitcoin starts to decrease in popularity this will affect the indicator in the bad manner. While the popularity of the reference decreases the indicator could give wrong signal about the rise of the popularity of all other coins.
- Coins won't probably ever be equal, just because there are things behind them, which actually define their cost - things like community, security, support, distribution popularity, name etc. These things will always be of different quality for different coins.This is why volumetric and FM are just rough estimates. Use carefully!