Since the beginning of Bitcoin there is a correlation between price and transaction volume. When more transactions are made it signals that the network is more intensively used and thus valued higher. In this article I want to compare the amount of transactions of the 3 biggest cryptocurrencies that are ment to be a peer to peer payment system and see how this matches with the value of the network. Doing this we can visualise whether a cryptocurrency is overvalued or undervalued as a payment system.
What is the most undervalued cryptocurrency if we look at the transactions?
Dollar valuation of the network per transaction
In the table below you can see at how many dollars every cryptocurrency is valued by the market per transaction per day. Of course this is only a PART of the valuation because many other factors will play a role. However, it indicates the real use of the network and can beside other metrics be very useful.
Sources:
Transaction value
To make transactions the user is required to hold some of the cryptocurrency. When bigger amounts are send bigger amounts will be held too and thus will increase the demand and value. To make this valuation more relevant the transaction value have to be considered.
As you can see: LTC is valued 1.42 times higher per dollar send per day and BCH even 3.23 times.
Sources:
Other considerations for a fair valuation
Bitcoin is most undervalued when we only consider the network value divided by the amount of dollars send on the network per day. This only means that Bitcoin would be most undervalued one when ALL the other factors would be the same every investigated cryptocurrency. Of course this is not the case. Here the most important factors:
Network effect
When you own a cryptocurrency it will become more useful if many others own it too because there will be more peers to transact with. Network effect is a huge advantage for BTC. LTC and BCH are far behind on a shared 2nd place. This will add enormously to the value of BTC.
Infrastructure
BTC is around for ten years already and an infrastructure is build around it to make it more useful and accessible. Litecoin was one of the first alt coins and has build a proper infrastructure too. BCH has stolen a part of the BTC infrastructure when they split off. The BTC infrastructure is clearly the biggest and most advanced complete with a satellite service and the crypto reserve function on the exchanges followed by BCH because a few important websites are backing it and it gets support from companies like Bitpay. LTC is here the loser.
Development team
Bitcoin has a big development team and this team is also the most talented one. 95% of the real innovation comes from this team and the other teams mostly copy it. BTC is here by far the nr. 1 and LTC is 2nd. The BCH team is the big loser here because it is small and the quality is terrible. Upgrades are badly written and poorly tested.
Offchain transactions
The entire valuation above was purely focussed on onchain transactions, but 2nd layer like Lightning are a source of transactions too. Lightning Bitcoin is by far most popular and has the most transactions, but LTC is joining the game too on a lower level. BCH doesn’t transact off chain at all.
BTC can be used in other forms of offchain transactions too: RSK is doing ETH like smart contracts, Liquid does settlement for businesses and even physical cash can change hands in the form of Bitcoin by using banknotes or Opendime. Also here is BTC far ahead and thus most valuable and BCH the big loser.
Security
Security is the foundation of a blockchain and adds hugely to the value. BTC is by far the most secure network because it has the biggest amount of computing power behind it and is the majority chain of the PoW algorithm that it is using. LTC is 2nd, although their chain isn’t the one with the most PoW behind it, it is the leader in its own PoW algorithm. BCH is by far the least secure chain since the same algorithm is used for BTC while they only have 10% of the total hash rate. This makes it extremely vulnerable for an 51% attack or double spends.
Store of value proposition
Bitcoin is seen as the best store of value among all the cryptocurrencies because it has the longest track record, is extremely secure and decentralised and very hard to change. The store of value proposition will add HUGELY to the value, because people who make transactions hold usually only small amounts in their wallet while HODLers are often holding a lot. This means that in order to add value for one store of value user you will need many medium of exchange users. Bitcoin is the king as a store of value and BCH is the worse seen all the risks and the regular appearance of hardforks.
Conclusion:
Only purely valued as a medium of exchange BTC is the clear winner and most undervalued. LTC comes quite close after that on a second place, but BCH is very overvalued and the big loser. Add to that the other fundamentals and the differences in valuation will become even bigger. In my opinion based on this information LTC is around 100% overvalued compare to BTC and BCH even 5 to 10 times.
I consider BTC as a strong buy, LTC as a HODL and BCH a strong sell. Manipulation and misinformation are probably the reason that the fundamental value and the market price of BCH are so extremely diverged. When you buy BTC you buy the revolution and when you buy BCH you buy hype and air!
Long story short: BTC is the most useful cryptocurrency and used the most and BCH is a hyped alt coin that is hardly used while it is NOT reflected in the price.
Disclaimer
This is no financial advice, just my view on the market.
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