So you want to be a cryptocurrency trader, eh?
One of the best rules of thumb in this space is to Do Your Own Research (DYOR). But if you're new to cryptocurrency, how do you go about doing that research? What are you looking for? What do you want to avoid? I will allow you to peer over my shoulder as I get interested in a coin, teach you some new vocab words, and also show you how to use the HitBTC exchange while I shill you my new gem, lol. This is the second in my series of Cryptocurrency for newbies series. If you missed the first one, it's a great place to start.
https://steemit.com/cryptocurrency/@j0z0r/getting-started-in-cryptocurrency
So before we really start, let's get some more vocab words under our belt. First one is shilling, which is encouraging other people to buy in to your coin so you can make more money. It can be seen as a negative thing, but some of the coin's most vehement supporters are also it's biggest, cult-like shills; because of them, I heard about NEO/ANS when it was $0.80, ChainLink at 20 cents, XMR at $12, and the list goes on. But I wouldn't have necessarily known about these coins as soon if it hadn't been for their cult upboating everything positive about a coin on the reddit or whatever. But not everything that's shilled is good, sometimes people in this space are motivated by money and tell you to buy in when something is overextended, as they dump on you for profit and buy back in lower. What I'm about to do with this coin is shilling. It's unintended, but I don't think my motivations matter. As I'm presenting this coin to you as I'm researching it, don't go and buy it unless you think it's a good deal after researching it for yourself. I could be dead wrong or even just making things up so you'll buy a coin that has no value.
Next vocab word is decentralized. You'll hear it all the time when looking up cryptocoins. But what does that mean and why does it have value? Centralized systems are better in many instances. One good example is Visa. Some of the best crytocurrencies we have can only handle about 7k transactions per second. Although that is improving all the time, Visa, a centralized service, can handle 50K+ transactions per second, all day every day.
But if Visa goes down for some reason, it just doesn't work. It has a central point of failure. They also charge a fee for providing the network, although this is usually transparent to the customer. In a decentralized system, the miners are paid the transaction fees to incentivize them supporting the network. The fees can be much smaller, and the network generally tends to make things work, even in sub-optimal conditions. There are many more benefits to decentralized blockchain use, but it's too broad of a topic to talk about briefly right now.
Where to start?
So even if you knew how to thoroughly research a coin, where would you start? In the first post, I went over what a great resource https://www.coinmarketcap.com (hereafter referred to as CMC) is. This is usually where I start my searches. Hear something through the grapevine of crypto info and before I blindly buy, I go to CMC and take a look at it. You can even use the different ways to sort all cryptos on CMC and find one that has abnormal volume coming into it, and pick that up. Sometimes volume is more important than market cap. Beware that the 24-hr volume is all buys and sells together, so sometimes it looks good when it's a pump and dump. How to spot those? Read on...
Here's the checklist of everything you want to find out about a coin before you buy.
- Name/Symbol
- Market Cap
- 24 Hour Volume
- Circulating supply versus Total supply
- What is the purpose of this/coin token?
- Where can I buy this shitcoin?
- Does it have a WORKING PRODUCT?
- Roadmap
- Previous delays?
- Team and history
- Use case and adoption
- Whitepaper
First we take just a quick glance and try to get the shortlist of important info: Name/Symbol of the coin, where it trades, what the market cap is, what's the volume, what's the volume divided by market cap, what the flop does the coin do? Does it incentivize me for holding it? Is it the "next big thing" in crypto? This is just a quick glance to see if the coin is worth being researched further. This should give you a rough overview of what the potential problems are as well as the potential upside/downside.
Today we're playing shitcoin roulette, trying to find the lowest market cap coin that has the most potential and is undervalued. Just sorted CMC "All Cryptos" by "Market cap, and went off in the weeds. I'll go ahead and present my coin:
Ethbits (ETBS)
Here's the CMC page for it:
You should already be learning a lot of important information from that snapshot alone. The market cap, logo/name and brand recognition. How many of them are there? What's the circulating supply compared to the total supply. The volume is how much was bought or sold in the last 24-hours. Pitifully low right now on this particular one. Not enough money in it right now to get out of it with millions if you made that. But by that time, volume would be up, so it's kinda a win/lose. Also it is a good thing because it means it's so small no one big has really accumulated it yet. And possibly it's a good one that no one wants to sell, we can find that out later.
Let's go through each of those things one by one and see what they mean for us at this point in our research.
Market Capitalization:
This is a simple calculation of last price paid multiplied by the total amount circulating. It isn't the best metric for cryptocurrencies for a plethora of reasons, but it is a good quick measure of potential. One of the reasons it isn't good is because it doesn't show you how much is moving per day. Market cap assumes everyone could all sell at the same price, which wouldn't be possible if everyone wanted to sell at once. But for now, let's use it to determine how far down the list we are and where we are valued compared to similar/competing products/services.
As for Ethbits, the Market Cap is around $3 million. This ranks it currently at 586 out of all cryptos. That's huge potential for upside! The potential for downside is less because it's so small. If it dropped in price/market cap by half, it would be even more of a deal and even more people would (potentially) scoop it up. We need to find some competitors/similar projects to compare the market cap to and see how much potential it has to grow based on interest in similar projects in the space. We'll save that step for later when we have more information on what the token actually does. One of the things I like to do here is calculate the price per token if the market cap was the same as Bitcoin. This is basically the "What if" best case scenario in which the coin I'm researching replaces Bitcoin as the de facto crypto standard. It's not likely for most, but it's just a back-of-the-napkin calculation I do for my own benefit. Bitcoin is sitting at $234 Billion market cap right now. So take $234 Billion and divide it by this coin's circulating supply. If Ethbits gets the market cap of BTC, each Ethbit would be worth around $156,000! Of course, this isn't going to replace Bitcoin, it's just a quick metric to gauge how big the coin could ever be.
Logo/Brand recognition:
This is more for the marketing majors, but still a good thing to take in and weigh. Is the name and logo aesthetic and recognizable? Visually appealing, and preferably simple? Does the name have meanings in other languages? Is the token/ticker symbol related closely to the name? Does the logo/name summarize what the coin does in any way? These things only matter for public perception, but in a market driven by hype and speculation, it is a good thing to take notice of at least. For example, if our coin was called Dogshit, and the logo was a poop emoji, even if it was the next big thing in crypto and did everything else right, people would skip over it in a lineup.
How does our Ethbits stack up? Name is simple and conjures images of "bits" of Eth in my mind. Logo is clean and simple, looks like a currency symbol with it's take on the "E". I don't think it means anything in another language. As for the token/ticker symbol; it's ETBS for this one. Not exactly intuitive, but probably the best that could be done with that name. To me, saying "ETBS" in my head kind of sounds like I'm refering to "ETH BS." Not the most encouraging, but that's just me and what comes to my mind. For the logo/ticker category, Ethbits is just average, not bad or good, but what you would expect.
Circulating supply/Total supply
Circulating supply is a measure of how many tokens are circulating for the public to buy/sell. Note that CMC isn't always correct on this, sometimes there are less/more coins in circulation after some event, such as a token burn/swap. Unless/until you can verify this number for yourself, just use it as a loose metric. Also compare it to the total amount of coins. These numbers are usually different for lots of reasons. Bitcoin, for example, has 21 million total supply, but only about 17 million of those are circulating right now. Where are the others? For BTC, they don't exist yet, they are waiting to be mined. As another example of how the circulating and current supply could be different, look at NEO. It has 65 million circulating, but 100 million total. Where are the other 35 million coins? For NEO, the developers have possession of these extra coins. They are "locked" which means they can't be transacted for a certain amount of time. They will probably slowly introduce them to the market in batches, so they don't tank the price by selling all at once. This is something you should look into for whatever coin you have picked out. The developers could be saying the tokens are locked away, but if you don't have an address where you can see their balance, there's no way to confirm that. If there's a large difference between the circulating supply and the total supply, you need to find out why and when those coins are going to hit the market.
How does the supply look for Ethbits? Circulating: 1,391,604, Total: 1,634,691. This means that 85% is circulating. That leaves 15% locked or in the hands of the developers. Also, this coin has less than 2 million units. That means every single one we buy is a bigger percentage of the total than if there were 1 billion coins, just for example. We'll have to research more to figure out where the uncirculated tokens are and what the future plan is for them when we go on a deep dive. For now, just make a note of it. 85% circulating is a good majority, so Ethbits passes this test at a quick glance.
24-hour Volume:
This is important to look at because it tells you how much of the coin trades hands every day. This means that if you're buying, you want it to have decent volume so you can get your money in without spiking the price too high. It's also important for the opposite reason; You want to make sure enough people are buying it so that when you sell, you don't tank the price and hurt your profits on your way out. I also take the 24-hour volume and divide it by the market cap to see what percentage of the total market cap is moving daily. This is a way to indicate pump and dumps as well as a general metric. If it's a pump and dump, it will usually have more than 50% of the market cap in 24 hour volume. It's not always the case, but the majority of the time it is.
Ethbits has $21k in daily volume. To me, this means I can't move in more than 10% of that daily without spiking the price. It also means I can't cash out more than 20% of that daily without tanking the price. I normally don't share amounts, but it's relevant here, so I shall: I'm planning on putting $2k into this coin over time. If it goes up 900%, I would have to wait a few days and cash out slowly not to wreck the price at this level of volume. Again though, if it went up 10X, volume would probably rise too. You only want to measure this just to make sure you can get money in and out. The 24-hour volume divided by the market cap is less than 1% for this coin. That's kind of low, but there could be reasoning for people not wanting to sell, we'll find that out in our deep dive. Right now, Ethbits gets an "acceptable" rating in this category.
Let's look at the chart:
I'm concerned about those abrupt spikes, but it seems like the price jumps because of the low volume, so may not be too concerning. Also there was a rush to buy it right at the beginning of this chart with people paying $7 for this coin. That means we can double our money in it at the current price before the people who bought in at that point can break even. To me, this seems undervalued just from the chart and market cap, but we have to see what it does. It could be a scam, so we'll have to read more into it.
Let's look really quick at where we can buy this shitcoin:
It looks like the only place with real volume and liquidity is HitBTC. Not the greatest exchange, but usable. I have an account there, but I'll guide you through using the somewhat confusing interface. Also notice that it only sells for BTC at HitBTC, that will be important when buying it.
What does this coin do?
Let's look at their website, see what they purport to be all about.
Ok, so it looks like they are making an exchange:
Let's look at their ANN thread. That's the link when you click "Announcement" on CMC.
90 pages, let's skip through, read some of the middle ones and the end ones...
Devs recently distributed profits they had leftover from restructuring the ICO funds. This is very interesting to me. The math works out to that $31k given back was equal to $0.01 in ETH per Ethbit held. That doesn't sound like a lot, but with such a low supply and profit-sharing like this, if their exchange succeeds and makes any kind of volume, like $31k per day, each of these will give you a penny a day. If they play their cards right, these could be awesome. But it is a gamble.
Roadmap
A roadmap is a rough estimate of the plans for the future of the coin. This is where the developers will showcase the dates they plan to hit certain milestones. Some coins have roadmaps pretty far in the future, with no updates or working product for a while. Usually conferences that team will be attending will be listed here. Conferences can bring a lot of attention to coins when their devs are rubbing shoulders with other people in the space.
Community/Team:
I don't have Telegram on my computer...
I have it on my phone though. I messaged around in there and talked to users. Seems a lot of people hiding their money in there from Venezuela. They also want to create a localbitcoins style interface for ETH and other things and share 80% of the fee revenue from that with the "shareholders".
One of the boxes you want to tick off in your research phase is the team. Who are they? What history do they have? Do they have the capacity to pull off what they are attempting? Too many people? Too few?
This is where Ethbits is the weakest. I couldn't find any public profiles/names of the developers. This isn't always a bad thing, anonymous teams are sometimes better in crypto, and for some coins, all the development is done by volunteers.
For me, this coin checks off a lot of the boxes. The few that it is deficient in aren't deal breakers. They have already distributed money to everyone, so that part of the system works. They should be getting some more press in mid January, and for a real project at all, a $3 million market cap is a joke. It's lowest competitor has a market cap of $6 million so there's definitely room to grow. If this exchange gets even a pittance of volume, the quarterly dividend payout will be more than the coin is worth right now. We're also trusting the anonymous team to be able to deliver on their promises. Sometimes even teams with the best intentions promise too much and can't deliver because of the vast scope of their project. This one doesn't appear to be that way, because making an exchange isn't some Herculean, unachievable task. Adoption of their "localbitcoins for Eth" is a wildcard that could either skyrocket this coin, or leave it at basement prices forever. All that being said, I came to crypto for high-risk, high-reward investments.
Fuck it, I'm in, lol. I can see this being worth 10x what it is in a few months once the market realizes what I have found. I'm going to start getting into it slowly, 10% of what I want my stake to be in it at a time. I'm going to sell some of my Request and get into this. So if you're following along, go to Binance and sell some Request (or whatever) to get some ETH. We're going to send ETH because the fee is smaller than transferring bitcoin, and I'm not moving huge amounts.
I'm going to go to the REQ/ETH market, sell 100 REQ for like 0.07 ETH, and send that over to HitBTC (more on that later) to buy some more ETBS.
Sold! Right between some walls!
Then we have to withdraw the ETH to the other exchange, HitBTC.
Look at those fees! Binance is kinda greedy, but it's worse on some things. Just always look at what fees you're paying and convert it and make sure it's not ridiculous. $7 to transfer like $50? A bit ridiculous, but we'll take it. BTC's are like $20 flat per transaction.
Copy your address from HitBTC:
First go to "Accounts" and then the "Deposit" button on ETH:
Then copy the address given so you can tell Binance where to send your ETH.
Wait forever for your ETH to come through...
Once it arrives, you have to transfer it from your main wallet to your trade wallet. This is done internally on the exchange and isn't an Eth transaction, so it won't cost you any fees.
Remember when we first started looking at this and noticed it's only available for BTC on this website? We're going to have to sell our ETH on the BTC market to get the funds to buy this coin. You will lose a little in sales fees and spread/liquidity, but it's better than the $20 BTC transaction fee if we had just sent BTC over. Eth is also much faster most of the time. So sell your Eth for BTC:
Then go to the BTC market for ETBS, and buy some:
Now you have some fresh Ethbits in your exchange wallet! You successfully researched a crypto and transferred your funds and bought it! You're moving on up in the cryptocurrency world. But when are we going to sell? What if it tanks? My next article will be about how to set up a plan for price fluctuations whenever you buy a crypto and how to stick to it. Please let me know how I am doing. These articles take a bit of time and effort to make, any criticism is welcome, I would love to improve. Thanks for reading, please share!