Welcome to the final piece in my post-cryptopocalyse survival manual. In the past five sections we’ve gone over how to set goals, risk and start to pick which coins you think will bounce back from this massive knockback.
If you’ve been with me for this long, you’ll see i’m being very conservative (as much as one can be when talking about a bleeding edge market like crypto/blockchain). In this space, there’s no such thing as an overabundance of caution.
For this final installment I want to give you some examples of simple methods to figure out how to come up with your own valuations. There are lots of other options out there no single way of doing this is correct. You’re best off running your picks through a bunch of methods. It’s a good way to check your data, and your own work.
Look at the Market Cap / Industry ratio
a Market Cap… get it? (Editor’s note: Mr. Herman has been chastised for the quality of this joke.)
This one works really well if you are looking at coins in a niche market. Say there’s a hypothetical coin for movie studios. Let’s say the coin’s supply is 2 billion. If this coin was worth around $5 a coin, then it’s market cap is 20 billion. The movie studios had $50 billion in revenue last year from box office alone. That would be an attractive risk – assuming the coin in question was actually, you know, good for something. (maybe it’s for secure ticket and digital signing of movie prints – feel free to contact me to invest)
On the other hand, I read about Dentacoin. It’s market cap was 2trillion coins, – in January it had a market cap higher the entire dentistry industry. Crazy! There’s your huge red flag right there the Greater Fool effect is in force (see Part II).
Making sure the Market Cap is in line with the industry it serves is a good bar to set. If your picks clear it, it’s a good sign.
As Spock Says – There are always Possibilities
Here’s where your research, reading and market knowledge come into play. Unfortunately without a crystal ball you are playing with probabilities. It’s very similar to what we do here at Equity Guru. Look at the trends, look at the patterns, and come up with a series of likely possibilities for your pick, and see if you can live with those outcomes.
For Math nerds:
I am going to give you a reading assignment, to help you get started on some of the details. It’s got all the formulae and gnarly stuff you will love. It’s here
For everyone else:
Here’s a much more visual way of looking at trends and doing your analysis. It’s way better than anything else I can summarize. So check out Cryptopotato’s excellent piece.
If you want to dig into other models and suchlike such as Metcalfe’s Law (value of networks) etc. the two links above should point you in the right direction. News sources like EG are an important source of data – but the real responsibility to crunch the numbers make the picks are in your hands.
Ok so now what do I do?
Are you kidding, I just spent like six articles expl— ok fine. Once you’ve vetted all your picks, it’s pretty simple. put your money in the ones that seem like they’re gonna make money. If none of them look like they have a 50% chance or better of surviving and thriving, you likely picked the wrong set of coins, or when you factored in your risk comfort levels, nothing looks good enough for you.
There’s nothing wrong with that – Like many new technologies and markets, crypto and blockchain are high-risk, high-reward prospects. This series is designed to help you mitigate the risk, not avoid it.
If you want to avoid it, I’m sure a nice mix of bank preferreds, ETFs and Index Funds will be a smooth ride to retirement.
You likely will never afford a Lambo though…
What Now?! How to survive the Cryptopocalypse
What Now?! Part II – Your Crypto investment Strategy
What Now?! Part III – Risk Management in your Crypto Portfolio
What Now?! Part IV: Check yourself before you wreck yourself
What Now?! Part V: How to Pick ’em Vol. 1