UPDATE: Just realised my maths is off. I posted this prematurely and the conclusion is actually wrong: not every cryptocurrency is over-valued relative to Bitcoin. The updated version of this article is available here.
I did a little analysis this evening to try to find cryptocurrencies that are under-valued relative to Bitcoin, based on Google Trends data, with the intention of buying whatever is under-valued and waiting for it to go up. But I found that all of the top cryptocurrencies listed on coinmarketcap.com are in fact over-valued.
The hypothesis here is that if the Google Trends score for "buy ethereum" is 50% of the score for "buy bitcoin" (i.e. about 50% as many people are looking to buy Ethereum as are looking to buy Bitcoin), then the Ethereum market cap should be approximately 50% that of Bitcoin. If the market cap is too low then it is under-valued and I should buy some Ethereum.
Unfortunately, I didn't find a single cryptocurrency that is under-valued based on this hypothesis. We'd be looking for a cryptocurrency with a "market cap over-valued factor" of less than 1, i.e. under-valued. Here's a table of my data:
| Coin | Google Trends score | Score relative to Bitcoin | Market cap | Market cap relative to Bitcoin | Market cap over-valued factor |
|---|---|---|---|---|---|
| Bitcoin | 75 | 1.00 | $71,700,000,000 | 1.00 | 1.00 |
| Ethereum | 15 | 0.20 | $32,000,000,000 | 0.45 | 5.00 |
| Bitcoin Cash | 8 | 0.11 | $10,200,000,000 | 0.14 | 9.38 |
| Ripple | 14 | 0.19 | $7,820,000,000 | 0.11 | 5.36 |
| Litecoin | 4 | 0.053 | $3,300,000,000 | 0.046 | 18.8 |
| Dash | 5 | 0.067 | $2,730,000,000 | 0.038 | 15.0 |
| IOTA | 4 | 0.053 | $2,550,000,000 | 0.036 | 18.8 |
| Monero | 2 | 0.027 | $1,970,000,000 | 0.027 | 37.5 |
| Ethereum Classic | 0 | 0.00 | $1,520,000,000 | 0.021 | ∞ |
| ZCash | 0 | 0.00 | $568,000,000 | 0.0079 | ∞ |
I also tried looking at Google Trends for just "bitcoin", "ethereum", etc. (instead of "buy bitcoin", "buy ethereum", etc.) but it just came up with an even higher "market cap over-valued factor" for each coin.
Either fair market cap of a cryptocurrency is not a linear function of Google Trends results, or every cryptocurrency except Bitcoin is over-valued relative to Bitcoin.
I intend to re-run this analysis periodically in case it throws up anything interesting. Although I admit it is likely that by the time the public at large are sufficiently interested in a cryptocurrency to start Googling about buying it, there will probably be much earlier and stronger indicators that it is about to increase in value.