The winter of 2018 is exceptionally cold with the total market cap of global digital assets falling to 112.1 billion dollars. Compared to the 760 billion dollars market cap in early 2018, 85% of its value has been wiped out, along with massive fluctuations in tokens’ price. Among all, Bitcoin [BTC]’s price bottomed out at 3300 USD after plummeting from 6400 USD, and showed sign of rebounding from 3300 USD.
What can investors learn from this volatile market, and hopefully make every penny they lost worth it? My suggestion would be: get ready to make wave in the market rebounding.
The first rebound after a series of falling always means opportunities. If a person chose a good stock, he/she may offset the loss in a short period of time, or he may even make unexpected profits and vice verse. Therefore, in current market, choosing a good investment target is critical.
First of all, let’s dissolve the term “value depression”:
During the digital assets’ bull market, whichever token issuer’s story-telling skill surpassed the others, the related token price went hype. The irrational hype sounds not strange. Experienced stock investors remember the “price-to-whatever-ratio” leading to the stock market crash in 2015. To be an out-performer in investing, “understanding the market” is no longer an advantage. Public chain who used to “make dreams” are experiencing the “low valuation”. Whereupon, thorough understanding of market and real use cases become extraordinary important.
Which token will be understood by all and has wide use case? My answer is tokens issued by crypto exchanges. People know, understand and accept the tokens, especially those with a history of project operation, top ranked trading volume, multinational management, legal licenses, a wide range of business lines and a myriad of application scenarios.
Some investors think some exchange tokens’ price are relatively high? Indeed! Market capitalization of these tokens are higher on the whole as they are being adopted, applied and recognized. Investors should notice that, only those relatively undervalued exchange tokens worth an investment, not those absolutely cheap ones.
How to dissolve the term “relatively undervalued”? The most fundamental indicator of crypto exchanges is trading volume. Let’s have a look at the top 3 in term of trading volume on CoinMarketCap.
It’s not surprising to see that the top 3 exchanges are “old faces” who launched their own tokens. Let’s check their total market capitalization on “FeiXiaoHao”, a source for tracking market capitalization of crypto exchanges:
- No. 1: 567 million dollars of trading volume in 24 hours, with total market capitalization of 630 million dollars of its tokens, ranking 15.
- No. 2: 535 million dollars of trading volume in 24 hours, with total market capitalization of 210 million dollars of its tokens, ranking 25.
- No. 3: 450 million dollars of trading volume in 24 hours, with total market capitalization of 330 million dollars of its tokens, ranking 19.
We may get a ratio as below if we divide 24-hour trading volume by its tokens’ market capitalization:
Then we search for exchanges along with the ranking on CoinMarketCap and calculate their ratios with the same formula above. If the ratio of any exchanges is higher than the above top 3 ones, it is safe to say the price is being “relatively undervalued”.
By doing so, we can quickly find out the token that is seriously being undervalued. BIX, a platform token issued by Bibox, an AI enhanced encrypted digital asset exchange, with operation centers in the US, Canada, Estonia, China, Singapore, South Korea, Japan, Vietnam, etc. Per its official statement, the registered users of Bibox have reached more than 2 million. We can also see that, in accordance with CoinMarketCap, the 24-hour trading volume of Bibox amounts to 210 million dollars, but only has a 20 million dollars market capitalization of BIX, merely taking up a fraction of integers of the above exchanges. It would be more obvious if we do the ratio calculation, and compare it with the above ones.
The trading volume/market capitalization ratio of tokens of the top 3 well-known exchanges is around 1 to 2.5, while that of BIX reaches up to 10.5, which explains why the market capitalization of BIX is remarkably low. That’s precisely what we called “value depression” .
Second, circulation is the key:
Stock market veterans might say, even with low PE ratio, it would be hard to see the price of iron and bank shares to go up when market rebounds.
People familiar with stock market know that those stocks rebounding fast are the ones with small market capitalization, which has two meanings, first, the number of circulation stocks is small, it’s easy to move; second, the number of stocks being locked is small, or stocks at high price are not sold out. Both of them resulted in the less sell-off as the price goes up, so the stock price is quite easily to elevate.
In stock market, equity pledge means reduced shares circulation, which can be considered as positive news. It is the same case in crypto space/market, if a considerable part of a certain token is locked, it will narrow its circulation. Therefore, many project teams came up with a variety of ways to reduce the token circulation, such as repurchasing with proceedings, token burn, depositing money to earn interest in the “Cui Bi Bao” program, etc.
Take Bibox token, BIX, as an example. As mentioned previously, the market capitalization of BIX is only around 200 million dollars. Bibox was the first in the industry to take out 25% of its profits for buy-back tokens in the secondary market to burn when Bibox competitors unanimously agreed to take out only 20%. According to Bibox website announcement on November 1, 2018, Bibox bought back and burnt 1,954,452 BIX in the third quarter, adding up to 5,533,352 BIX in three quarters totally, that is to say, Bibox has already burnt 4.23% of its circulating BIX in three quarters alone.
It’s plausible to believe Bibox token is one worth an investment. The scale of its token buying-back and burning outperformed the other exchanges by 5%. And recently Bibox launched its token bond on the run – BIX Bonds with a 200% over-collateralization and 2.5 million BIX-denominated total face value. In other words, 5 million BIX will be locked as collateral.
It has a lot in common with the pledge of share right. Once stock shares are pledged, price will increase later on. However, in the case of BIX, the original circulation is already relatively small with substantial buyback and tokens burnt. Combined with over-collateralization, BIX token’s circulation is much smaller. Investors can stay optimal about BIX price because market rebounding can push its price up easily.
Third, observe if the exchange has further growth potential in bearish market:
Picking a good stock means picking a good company. Besides low valuation and small market capitalization, people are more concerned about the fundamentals, that is, whether the company’s performance is good or not. It is true for selecting tokens. Most of the blockchain projects, to be frank, are far from making real profits. However, most exchanges in the market are making profits and their tokens’ price are directly linked to their corresponding exchange’s growth potential.
It’s well-known that the main profit of exchange comes from tokens listing and transaction. The price of listing in bull market will be hard to replicate but still take a large portion of exchanges’ profits. As spot trading volume shrinks and the demand of hedging increases, futures contract trading is gradually valued by every crypto exchange. And the transaction fee of futures contract will become the stable source of profits growth.
Bibox is of no exception. On the summit held on 29 November in Singapore, Bibox disclosed that they would launch derivatives like perpetual contract trading, aiming to meet the demands of market investors and to bring considerable profit growth.
It should be pointed out that we can’t contribute token price’s growing to profit growth only. For instance, the launch of perpetual contract will also increase the trading volume tremendously, making the trading volume/market capitalization ratio of BIX token higher, and in the meantime, the growing profit will expedite the token buy-back and burning, then making the circulation smaller, lighter and token more valuable. Profit growth, total circulation reduction and good token ratio should always be the three indicators in forecasting an exchange token’s price [see the graph above].
In conclusion, the above three indicators fueled the growth force for future rebounding and price lifting. It’s reasonable to believe, once the market stabilizes, BIX price will bounce back and outperform most tokens in the market.