Cryptocurrencies that haven’t been listed on exchanges don’t yet have a price. That’s why investors and miners of unlisted cryptocurrencies often struggle to project the future price of their chosen coin.
Once those coins get listed on an exchange and buy orders start pouring in, it becomes visible how much they are really worth on the market. Until then, there’s a lot of guesswork involved.
There’s no way to evaluate future prices with 100 percent accuracy. However, with some clever analysis and a bit of math, we can make educated guesses. One of the most used methods is to divide the projected market cap by the expected circulating supply at the time of future listing.
Projecting a coin’s market cap is tricky. Most speculators use market caps of similar projects to make their predictions. Let’s use Safex Cash (SFX) as an example. This is a two-coin system where the first coin – Safe Exchange Coin – is already listed and has an established price and market cap. So, we can use Safe Exchange Coin as a benchmark for speculation.
Let’s assume that the second coin will reach the market cap of the first coin soon after its listing. The already-listed Safe Exchange Coin has a market cap of $17 million. There will be around 13 million Safex Cash coins at the time of listing. If Safex Cash manages to reach the market cap of Safe Exchange Coin at the time of listing, its price will be $1.30.
What about future price potential?
To evaluate the future price potential of Safex Cash, we should model the size of the coin’s potential market and divide it by the total supply of coins. To make this valuation as realistic as possible, we should estimate the percentage of the market this decentralized e-shopping platform can take.
Global retail e-commerce topped $2.3 trillion in 2017, with revenues projected to grow to $4.8 trillion by 2021.
The gross merchandise volume (GMV) of Amazon in 2016 was $136 billion, which represented 16% of the global e-commerce industry. Alibaba’s GMV was even higher, reaching $547 billion.
If we say that Safex Cash could potentially take just one percent of this $4.8 trillion market by 2021, Safex’s gross marketplace volume would be $48 billion. By the end of 2021, there will be about 150 million Safex Cash coins in circulation.
In order to estimate future price based on this data, we need to make a few more assumptions. Firstly, we should assume that only a portion of the coins will be used on the real market. Others will be stored in wallets or traded on exchanges. Some will be lost. Taking this into account, let’s estimate that 80 percent of all distributed Safex Cash will be used for buying and selling on the marketplace.
Next, we need to define how many times one Safex Cash will be used for buying goods or services. In other words, how many times on average one Safex Cash coin will change hands in a one-year period? In monetary theory, this variable is called the velocity of money (V). We can assume that V will be somewhere between 5 and 10.
Based on this hypothesis, we can then use the following equation:
GMV = M*V, therefore M = GMV/V
Where M represents the number of coins multiplied by the price of Safex Cash (SFX) in US dollars.
Safex Cash price = GMV/(number of coins*V)
Using the figures we’ve calculated, and assuming the velocity of money is 10:
Safex Cash price = $48 billion/(150 million*10) = $32.
If the velocity of money is 5, then the price of Safex Cash would be:
$48 billion/(150 million*5) = $64.
Coined Times asked Safex Chief Economist Ivana Todorovic what she thinks about the theory behind the calculation:
If we understand money as any other commodity (which is in accordance with the Quantitative Theory of Money) then the demand for money should be supported by its supply, and vice versa. When real market output grows, the quantity of money should also grow at the same rate.
This is a projection of the price of Safex Cash based on the real market. Prices on financial markets could be much higher, meaning that our calculated range of $32–$64 would be the minimum price on an exchange.
Projecting a coin’s future price involves a lot of variables. But with a bit of research and some simple math, you can get ahead of the curve when it comes to planning your investments. If you believe in a crypto project, it’s worth doing this to estimate the coin’s potential for growth.