For precious metals, there is something called the Gold Silver Ratio. That's just the number of ounces of silver needed to equal one ounce of gold. Investopedia.com is more specific when it says that it "measures the number of ounces of silver required to purchase one ounce of gold." If this ratio exists for precious metals, is there a similar ratio for cryptocurrencies? Of course! It's just math. Being able to track this calculated value will let you buy more crypto by using ratios.
General Idea
The general idea is that at any given time some quantity of one asset is needed to by 1 unit of another asset. If gold is priced at USD 1,700.00 and silver is priced at USD 25.50, then it takes {1,700.00/25.50} ounces of silver to buy 1 ounce of gold. In this case, it takes 66 and two-thirds ounces of silver to buy 1 ounce of gold.
By itself it's just a number, a calculatd ratio used in isolation. What makes the Gold Silver Ratio powerful is how it tracks over time:
- If over some period the ratio rises, sell 1 ounce of gold to buy more silver.
- If over some period the ratio drops, it takes fewer ounces of silver to buy 1 ounce of gold.
Historical Reference
Historically, the Gold Silver ratio had been in the neighborhood of 10-20.
When fiat money was decoupled from gold fifty years ago, the Gold Silver Ratio grew bigger and bigger to the point where it floats between 65 and 85.
For the most part, it's been in that 65 to 85 range. Then came that year we know as 2020. In mid-March of 2020, when authorities across the land shut down society, the Gold Silver Ratio shot up to over 120.
(If ever there was a time to take advantage of the Gold Silver Ratio, it was March 2020. Unfortunately, supplies of both metals were more limited than usual, and many dealers were themselves shut down.)
Many financial resources used for education and reference will say that the Gold Silver Ratio has a long history. Investopedia said "[T]he gold-silver ratio is the oldest continuously tracked exchange rate in history."
One Key Point
When using the Gold Silver Ratio, it's OK if both precious metals fall in value.
It's OK if both precious metals go up in value. It's also OK if one metal goes up as the other goes down.
What matters is the path taken by the Gold Silver Ratio from one time to another.
Since both rise or fall at different rates. As with all other commodities, supply and demand determine the prices for each metal. They change at different rates, and it's that rate differential will cause the change in the Gold Silver Ratio.
Broadening the Ratio Concept
The Gold Silver Ratio is used for the two precious metals and how one is valued against the other. However, it's just one of many ratios used to accomplish something similar.
Foreign Exchange -- ForEx (especially among the major world currencies) does the same thing. 1 Japanese Yen is 1 Japanese Yen, and 1 US Dollar is 1 US Dollar; but the ratio of JPY to USD is nearly 110 JPY to 1 USD.
Gold Oil -- Another important ratio is the Gold to Oil Ratio, which is the number of barrels of oil needed to equal 1 ounce of gold.
Bringing Ratios to Cryptocurrencies
It takes an insane amount of shitcoins to buy 1 BTC. Theoretically this can be done, but why?
More likely is determining how much of a major crypto is needed to buy 1 BTC.
Just to show how ratios can be applied to cryptos, here is a table from Coindesk.com showing spot prices in USD for Bitcoin, Ethereum, Ripple, and Cardano:
| Crypto | Spot Price (USD) |
|---|---|
| BTC -- Bitcoin | 32,557.66 |
| ETH -- Ethereum | 1,821.81 |
| XRP -- Ripple | 0.622619 |
| ADA -- Cardano | 1.27 |
Now we see a table of ratios for those four cryptos:
| Crypto @ Spot Price (USD) | BTC Ratio | ETH Ratio | XRP Ratio | ADA Ratio |
|---|---|---|---|---|
| BTC -- Bitcoin @ 32,557.66 | 1 | 0.05595642 | 0.00001912 | 0.00003901 |
| ETH -- Ethereum @ 1,821.81 | 17.87105132 | 1 | 0.00034176 | 0.00069711 |
| XRP -- Ripple @ 0.622619 | 52291.46556722 | 2926.04305362 | 1 | 2.03977071 |
| ADA -- Cardano @ 1.27 | 25635.95275591 | 1434.49606299 | 0.49025118 | 1 |
It takes nearly 18 ETH to buy 1 BTC. The ratio of Ripple to Cardano is a bit over 2. 1 BTC can be traded for over 2,926 XRP.
The second table is just a snapshot in time. The ratios in that table are just numbers.
The value of ratios can be seen when another snapshhot in time is taken later. The changes in rates between those snapshots in time will determine whether the altcoins get swapped for Bitcoin or if Bitcoin is sold to buy more altcoins.
Ratios for Hive Tokens
The same application of ratios can be done with the Hive tokens we care about. Below is a table showing 4 of them:
| Hive Tokens @ USD | HIVE Ratio | LEO Ratio | POB Ratio | PAL Ratio |
|---|---|---|---|---|
| SWAP.HBD @ 0.572 | 1 | 0.35139860 | 0.44055944 | 0.00900350 |
| LEO @ 0.201 | 2.84577114 | 1 | 1.25373134 | 0.02562189 |
| POB @ 0.252 | 2.26984127 | 0.79761905 | 1 | 0.02043651 |
| PAL @ 0.00515 | 111.06796117 | 39.02912621 | 48.93203883 | 1 |
It takes almost 2.85 LEO to buy 1 SWAP.HBD. The ratio of PAL to POB close to 49. 1 SWAP.HBD can be traded for over 111 PAL.
Bottom Line
Ratios are used to determine how much of one thing can be used to buy another. The oldest continuously used ratio is the Gold to Silver Ratio.
When we engage in foreign exchange during a trip to another country, we're actually using ratios of our local currency to our destination's currency.
Using ratios allow us to not worry whether the price of one item rises or falls because we're more concerned with the value of one item against another.
Just as ratios are used with precious metals (or even gold against oil), ratios can be used with cryptocurrencies. Most ratios would feature some altcoin valued against Bitcoin. We can even use ratios to determine how many Hive tokens can be used to buy LEO.
When the ratio increases, that's a good time to sell one crypto in order to bulk up on another. When the ratio drops, fewer units of the lesser crypto can be used to by the more valuable crypto.
| DISCLAIMER |
|---|
| As I am not a financial expert, this post is not meant to give financial advice. This post was written for informational purposes only in the hopes that it may be useful to anyone who is in a position to take advantage of it. |