Metrics are numbers that investors use to decide whether to buy, sell or hold a cryptocurrency. There are 6,317 cryptos being actively traded across 405 exchanges! This makes it hard to quickly decide whether a cryptocurrency is worth investing in, and so, If you are a serious investor, you must know about these 5 types of metrics:
R = ROI and risk
O = Open-High-Low-Close prices
H = Holders Stats
A = Amounts
S = Speed
Yes, I know that I have managed to build this around my name again, but hey, it’s easy to remember, right? Let’s dive in!
R = ROI and risk
Let’s talk about Return on investment (ROI), and risk metrics.
Return on Investment (ROI) measures the amount of return on a crypto investment, relative to its cost.
ROI = Profit / Cost
The graph below shows the RoI on Bitcoin through the years.
Photo Credit: Future Money Wallet
Cryptocurrency prices are notorious for large upward and downward swings. The 2 important crypto risk metrics are volatility and Sharpe ratios.
Volatility
Volatility measures the price fluctuations of a crypto. If a crypto has higher volatility, its value can be spread out over a larger range. The value of volatile cryptos can massively change in a short period.
Conversely, a crypto with lower volatility is likely to be stable and subject to smaller swings.
Volatility is usually measured using variance and standard deviation.
The graph below shows the Volatility of four cryptos — Bitcoin, Ether, Tether, and XRP. As expected Tether (USDT), which is a stablecoin, has virtually zero volatility.
Photo Credit: Future Money Wallet
Sharpe Ratio
Sharpe Ratio is the average return earned in excess of the risk-free rate per unit of volatility. While calculating the ratio, we subtract the risk-free rate from the mean return. This allows us to calculate profits associated with the risk-taking activity.
The risk-free rate of return is the return on an investment that has zero risks, such as a Treasury bond. A positive Sharpe Ratio implies that the returns are higher than the amount of risk.
O = Open-High-Low-Close prices
OHLC is a type of bar graph that shows the open, high, low, and closing prices for a crypto for a particular time period — an hour, a day, or even a year. Other price metrics are all-time-high (ATH) and all-time-law (ATL). As the name suggests, ATH is the highest price a crypto has ever reached and ATL is the lowest.
Example: Ether (ETH) hit an all-time high of Rs. 318,620.83 on May 12, 2021. Its all-time low was Rs. 30.74 on Oct 21, 2015. You should also check out the high and low prices over the last 24 hours, 7 days, 30 days, 90 days, and 52 weeks. You can track this data on this Bitcoin price history page.
H = Holders Stats
You’ve probably heard of the term “whales”. They are addresses that own more than 1 percent of the circulating supply of a crypto.
Some of the important metrics related to holders of crypto are:
- The total number of unique addresses that hold assets in the network.
- Addresses that have been active over the last 24 hours and 7 days
- Transactions carried out by the top addresses by balance
A = Amounts
Here we are going to talk about supply and market capitalisation.
Circulating Supply
This is the number of coins/tokens that are circulating in the market and are in public hands. Usually, the lower this number, the higher the prices are likely to be.
Example: The circulating supply of Bitcoin (BTC) increases approx every 10 minutes as new Bitcoins are generated with every block that is mined. The crypto with the highest circulating supply is SHIBA INU with 394,796,000,000,000 SHIB.
Maximum supply
This is the maximum number of coins/ tokens that will ever exist in the lifetime of a crypto.
Examples: The maximum supply of Bitcoin (BTC) is 21 million while that of Ether (ETH) is unlimited!
Total supply
The number of coins/ tokens that have been already created, minus coins/ tokens that have been “burned”.
Examples: In the case of Bitcoin (BTC), the circulating supply is equal to the total supply. Binance Coin (BNB) regularly “burns” coins and this helps maintain its price.
Market Capitalisation
The total market value of a crypto’s circulating supply. The Market Capitalisation is the Circulating Supply multiplied by Current Price. Historically, Bitcoin (BTC) has always had the highest market capitalization and Ethereum the second highest.
Fully Diluted Market Capitalisation (FDMC) is the market capitalisation if the maximum supply was in circulation, or Price multiplied by Max Supply.
If the maximum supply is unknown or unlimited, like in ETH, then FDMC is the Price multiplied by total supply. If the maximum supply and total supply are both unlimited, then we can’t calculate the FDMC.
S = Speed
Here we are going to talk about volume, speed, or velocity. Volume measures how much of a crypto was traded in a specific time period, such as within 24 hours, or 7 days. The speed or velocity of a crypto measures the rate at which the crypto is exchanged globally and is calculated as the 24 hour volume divided by the circulating supply.
Cryptos can be of various types, most commonly store of value, medium of exchange, and utility cryptos. For these cryptos, velocity is a very useful metric. The image below shows the velocity of some of the fastest cryptos as of 2nd September.
Photo Credit: Future Money Wallet
There are also wrapped cryptos that are pegged to assets like commodities, equities, intellectual property, and so on. Since these are totally dependent upon the pegged assets, their velocities may not be very relevant. The same could be said for governance tokens, dividend-paying cryptos, and security tokens.
Rohas Nagpal is the author of the Future Money Playbook and Chief Blockchain Architect at the Wrapped Asset Project. He is also an amateur boxer and a retired hacker. You can follow him on LinkedIn.