Investment: Asset manager, financier, and cryptocurrency teacher Alexander Alexandrovich Ryabinin says the investment attractiveness of digital assets can be determined by analyzing inflationary and deflationary processes.
The expert shared his method with the editors of BeInCrypto. If you aren’t a math head, this might melt your brain. But try to hang in there.
Investment in cryptocurrency
This study shows how the attractiveness of a cryptocurrency can be calculated, thanks to inflationary and deflationary processes.
For this, a coefficient was developed. It is necessary to substitute all the project data into it in order to get the most valid value.
A – current supply of tokens
B – inflation
C – current supply of tokens
D – staking
E – trading volumes within the platform subject to commission
F – commission
Perfectly reflects this Biswap idea:
We took the current capitalization of 220,490,000
Added an estimated 10% additional issue
60,000,000 – volume of tokens per day
Under 35% you can stake
0.5% of transactions are burned
In the case of the BSV, there are also deflationary measures that can be taken into account in the formula
Sometimes the staking offer is too small to be considered or not at all. Then we use the formula, removing staking.
An example is LRC:
10% – apy
70% – fee all trade for srakers
10% – burn
0.5% – fee trade buy and sell
1,374,513,896 – circulation supply
240,000,000 – volume trade per day
1,200,000 – fee a day
840,000 – fee for staker a day, 25,200,000 a mouth, 302,400,000 a year
120,000 – burn a day, 3,600,000 a mouth, 72,000,000 a year
1,374,513,896/72,000,000 = 19
You can substitute different data. The main thing that must be observed is that inflationary factors are in the first part of the coefficient, and deflationary factors in the second.
Thus, we get a coefficient that reflects the advantage of deflation over inflation. After analyzing the sector (each asset), we can get the average ratio. And due to this, to understand what assets stand out from the sector.
For example, after analyzing the sector of centralized exchanges from the TOP 100, it became clear that the average value is 20.
Here are the rates for the projects:
BNB – 20
We can conclude that attractive coins for investment will be OKB and FTT, as their ratios are below average. LEO is not an attractive investment. The rest are neutral.
Short term vs long term
This does not mean that these projects will benefit in the short term. Rather, on the contrary, these coins will quickly give a small profit. So, the LEO coin is growing faster than the rest in the moment. But if you look after a long period of time, then it will lose to investments with a lower coefficient.
This is due to the fact that this coefficient shows how quickly the supply of coins will decrease. Deflation largely reflects supply constraints. But it is worth noting that you cannot rely solely on this coefficient. Since it reflects only the growth / reduction of supply. The demand factor must also be taken into account.
The previous coefficient reflects the internal economics of the project. How will the supply of coins be reflected in a year, for example.
Now, we need to consider the external demand for the coin itself. After all, by combining these 2 indicators, we can understand how attractive the project is for investors and future profitability (at least through a reduction in supply – in a year there are 10% fewer coins, demand is good, which means that at least 10% growth can be predicted fundamentally).
So, how do we calculate the second coefficient:
A – current market supply
B – trading volume
For example, let’s analyze BSW volume a day:
220.490.000/60.000.000 = 3.5
We do the same with other coins.
2.579.588/4.535.631 = 0.5
25,000,000,000/161,474,917 = 1548
330.668.061/92.843.985 = 3.5
Based on the analysis, we can conclude that the most interesting coins for investors are GNO, BSW and RUNE.
Now let’s analyze for centralized exchanges.
163.276.974/1.030.589.981 = 0.6
953.954.130/7.004.759 = 130
135.473.350/62.725.740 = 2
98.379.860/4.197.593 = 22
154.409.022/24.103.685 = 7
60,000,000/9,630,463 = 6
Here we already have 2 FTT and BNB leaders, 2 good indicators from HB and OKB, the rest are outsiders.
As a result, we got 2 good ideas. FTT is low in both ratios and OKB with excellent deflation and strong demand.
You can add a coefficient for summing up the results:
A – offer coefficient
B – demand factor
Then we get:
BNB – 20*0.5 = 10
OKB – 15*6 = 90
Due to the large demand, BNB wins. But it is worth noting that the demand is floating, today there is, but not tomorrow. That is, in the short term, this calculation takes place. But in the long run, things can change.
As an example of historical confirmation, we can take the 2021 cycle and CAKE with its excellent deflationary measures. From February to high.
CAKE has more than quadrupled.
The rest of the decentralized exchange market grew by an average of 150%.
The exceptions are LRC and RUNE, which grew about the same. But if you look, their deflationary measures are just as good. LRC – 3.9. RUNE – 11. And the demand for these coins (volumes) was excellent.