Bitcoin

Cryptocurrency and scarcity: the secret to alt-coin investing in 2018

After Bitcoin’s rise to fame, it has recently been falling. Transaction times and costs caused investors to search for better returns in other coins. Other than better technology, they have a different reason for investing in alt-coins.

Because of the high value that coins with a high market cap already have, the expected gains are lower. A currency like Ethereum, while highly promising, will not be a “twenty-bagger” any more. This leads investors to search for new diamonds in the dirt — new coins which show promise, but still have a low market cap. A recent example which comes to mind is IOTA, which ascended in the crypto charts after its Tangle-technology came under the attention of large corporations.

With actual implementations of crypto not being widespread yet, adoption of a coin (and as a result, the market value) often derives from the potential of its technology outlined in a whitepaper (whether people “believe” in the tech), together with the development stage in which the currencysystem is, and the order of merit of people involved in the developmentteam. Also, communication of developer teams and social influencers on Twitter, Reddit and the like have proven major factors in pumping or dumping a coin.

Cryptocurrency and scarcity:
the secret to alt-coin investing in 2018
Cryptocurrency and scarcity: the secret to alt-coin investing in 2018

However, a much easier a more reliable metric of a new coin’s success is its availability. Cryptoinvestors all know that availability is a cryptoproblem. We’ve all had to explain to relatives and friends how to buy, a lot of us even gave others some crypto to get them started. I propose that the availability problem should play a major role in comparing the investment potential of different cryptocoins.

The idea is simple: markets are needed to bring buyers and sellers together. When a coin CAN be bought on more exchanges, it WILL be bought more. This means that when coins with poor availability get added to a large exchange, they will quickly appreciate in value. In this early cryptomarket, this advantage of volume trumps actual quality of the coin or usability of the tech. Consider the chart with the ten crypto’s with the highest market caps. Now check the chart of the last additions to the Binance exchange. Composing your portfolio using this ‘magic formula’ would have yielded an additional 147% of return over the last month.

The availability of coins is visible at sites like CoinLib and CoinMarketCap, when you click on ‘Markets’. However, it is difficult to compare availability of different coins.

Let’s define the availability of a cryptocoin as the combined volume of 10 largest exchanges in Crypto, which last month were BitHump, Binance, BitFinex, Bittrex, OKEx, GDAX, Poloniex, Huobi, Bitstamp and HitBTC. Those exchanges served on December 28 some 16 billion of volume. The idea is that the more available your favourite coin is to this volume, the more people can buy it and raise the price. If it’s NOT on a lot of exchanges, this signifies a bargain — the coin can be added to a bigger market and profit as a result. The graph next to here lists the top 25 coins with their respective availability. It’s clear that this graph confirms the hypothesis that coins with lower availability have a potential for higher profits.

How to take advantage of this? Either reinvest some of your BTC, ETH or BCH profits in the above-mentioned low availability coins. Or better, check the lower regions of CoinMarketCap for a coin with even lower availability. Binance, Bittrex and KuCoin are exchanges that offer a wide variety of coins that are not listed broadly yet. To see where your favourite coin is listed, you can use https://www.wheretocoin.com/dashboard. My pick of of the month was RaiBlocks, XRB — although it’s clear that other coins had even better returns in December.

In conclusion, availability proves to be a much better indicator of investmentreturns on crypto than the fact whether you ‘believe in the tech’ J Happy investing! If you need guidance, please read the small guide below.

I like to hear from you! Please leave any questions or feedback to this article below.

How to buy altcoins? — a small guide

This is an example for Binance, but KuCoin and Bittrex essentially work the same.

Step 1: Buy Ethereum (ETH)

You cannot buy most alt-coins with fiat, like Euro, Yen or Dollar directly. First, you have to buy Ethereum (ETH). ETH has trading pairs at all mentioned exchanges and has fast transaction times and low fees. So don’t use BTC, it will take more time and cost more. Buy with fiat (dollar/euro) at for instance GDAX/Coinbase or Kraken.

Step 2: Sign up to Binance (or one of the other exchanges mentioned)

You can sign up by at https://www.binance.com/ (or if you want to be nice, you can use my referral link: https://www.binance.com/?ref=10867339). Once you’ve signed up, you’ll receive an email with a verification link. Once you’ve verified your email you will then need to set up 2-factor authentication.

Step 3: Set up 2-factor authentication with Google Authenticator

Binance requires you to set up 2-factor authentication before they will let you deposit money onto the exchange. This is to ensure your security to protect against hackers trying to access your account. To do this you will need to download the Google Authenticator app on your phone.

Step 4: Transfer your ETH from Gdax to Binance

To transfer your ETH from one exchange to the other, you just need to get your ETH walletaddress from Binance first. To find this, click “funds > withdrawals/deposits” found in the top right corner of the Binance page. Find ETH and to the very right you will see “Deposit” or “Withdraw”. Click on “Deposit” and you will receive your ETH walletaddress. Copy this address.

You will now need to go back to Gdax and click on the “Accounts” tab at the top of the page. Click on “Send” in your Ethereum Wallet and you will be prompted to enter an address that you wish to send your Ethereum to. Paste the address that we copied earlier from Binance and then hit send.

Step 5: Exchange your ETH for your desired coin (e.g. TRX)

Almost Ready! On Binance, click on the “Exchange” tab at the top of the page. You will be taken to a page with a list of trading pairs. Scroll until you find the TRX/ETH pairing and click on the green “Buy TRX” button. Your TRX will be in your account!

Step 6: Profit!

Watch as the price of TRX/[your favourite coin] goes to the moon!

If you want to be nice and help me out, use my referral link or code when signing up to Binance or KuCoin. It will cost you nothing and will give me a small bonus for writing this analysis.

Binance Link: https://www.binance.com/?ref=10867339

KuCoin Link: https://www.kucoin.com/#/?r=1JacN

Bittrex Link: https://www.bittrex.com/


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