Every cryptocurrency is over-valued relative to Bitcoin
Sun 27 August 2017UPDATE: 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.
If you like my blog, please consider subscribing to the RSS feed or the mailing list: