There’s been a lot of talk lately about market capitalization and circulating supply. As sub-$1 altcoins have shot up in price, some new investors have been making noises about their anointed coin being worth more than bitcoin one day. What these new entrants fail to take into account is digital scarcity: the notion that assets which are plentiful are cheaper than those with a limited supply for good reason. Bitcoin Price Equivalence is a new website that seeks to set that right.
Cheap But at What Price?
The rise of crypto’s “penny stocks” has brought with it fevered debate about how much these digital assets are worth. A widely circulated tweet last week “Removing Unit Bias,” asked, “If everything had the same supply cap as Bitcoin, would you still buy it?” and displayed popular crypto currencies’ current value if there were just 21 million of each in existence. Bitcoin columnist Eric Wall followed this up in his weekly trading feature, writing:
"Of course, the unit price of a coin is a totally senseless basis for making investment choices on. Any cryptocurrency–even Bitcoin–could have been a sub-cent item, if Satoshi chose the final cap to be 21 quadrillion instead of 21 million."
To help calculate the true value of cryptocurrencies, whose circulating supply can differ wildly, a new website has been created. Bitcoin Price Equivalence http://bpeindex.com/ “normalises price by removing unit bias, coins that look “cheap” are probably not as cheap as you think”.
Leveling the Playing Field:
If ripple and stellar had the same supply as bitcoin, for example, one XRP would cost around $15,000 and one XLM would be worth $4,000. The two coins currently trade for around $2.50 and $0.66 respectively. The question buyers should be asking themselves when eyeing a “cheap” cryptocurrency is “Would I be willing to pay this if it were priced using the BPE?” Plenty of buyers are willing to pay a few dollars for a ripple, but no one in their right mind would consider shelling out $15,000 for one. Bitcoin, on the other hand, has no shortage of takers at that price.
Dentacoin is a token for the dental industry which has been raising eyebrows since soaring to a $1.8 billion market cap. The BPE of the coin, of which there are eight trillion, works out at $633. Should the coin ever reach its BPE valuation, dental patients will be paying for a check-up using fractions of a DCN.
The Bitcoin Price Equivalence is useful not only in showing coins that are blatantly overvalued, but also in showing ones that still have room to grow. Ethereum, for example, has a BPE of $6,700. The network has its share of problems to address, including scaling and over-centralization, but at least ethereum is being used. A $6,700 ethereum in the future sounds less far-fetched than a $15k ripple, $633 dentacoin or $600 kin.
Do you think the Bitcoin Price Equivalence is a useful way of valuing crypto currencies? Let me know in the comments section below.
Disclaimer: This is not my original content or written by me. This article is being written by Kai Sedgwick on Bitcoin.com. Reference link: https://news.bitcoin.com/bitcoin-price-equivalence-shows-cheap-cryptocurrencies-really-worth/?utm_source=OneSignal%20Push&utm_medium=notification&utm_campaign=Push%20Notifications