1/47 This the 3rd flood on my Fundamental Analysis series. On this lesson, we are going to talk about the Quantitative part a little bit. Circulating-Total-Max Supply, Rich List, Coin Distribution…You can find the other lessons and my FA floods here: 
2/47 There are a lot of people out there putting their money on projects they know nothing about. Some of you, I know you are out there, don’t even check the basic stuff like “Circulating Supply” , “Total Supply” and “Max Supply”.
3/47 If you are one of those guys, I don’t expect you spend any time on looking at the “Rich List” and “Coin Distribution”. I will try to give a little insight about these topics and importance of them.
4/47 I learned this the hard way. Back in the day I jumped in the projects just because of hype and didn’t even think about the consequences. One of the worst things on Crypto happened to me: “I won on my first couple of trades, and felt like a million bucks.”
5/47 This confidence let to a loss of big chunk of my portfolio. Why? On one of those days, again I followed the hype. Didn’t check any of those metrics I mentioned above… “It is a cheap coin. Only 24 Cents. Let’s make some money!”
Man was it a mistake…
Man was it a mistake…
6/47 First of all, if the project is listed on there, use the CoinMarketCap website all the time. Understanding Market Cap, Supply and Volume is very important. Sometimes even spending small time on these parameters can tell you a lot about a project.
coinmarketcap.com
coinmarketcap.com
7/47 I assume all of you are familiar with the concept “Supply and Demand”. The circulating supply is the number that provides us the Market Cap of the project. You multiply the circulating supply with the current price for that.
8/47 Circulating supply is the total number of coins that is currently in circulation which has been released to the public.Some projects premine all coins and distribute through ICO and for some you have to mine/stake over time,or they are released on a schedule or as rewards
9/47 Don’t forget circulating supply can give you false information. Especially in a project that has Proof of Stake and/or Masternodes have coins locked up in wallets which are not in general circulation for a period of time.
10/47 It is hard to predict the Circulating Supply and also deduct these coins from it because if I stake a coin or create a masternode, I can change my mind and sell those coins at any given time. General argument is people tend to hold on to their MNs during small fluctuations.
11/47 It is good to have information about the amount of coins which are staked and the number of masternodes to have a more educated guess about the circulating supply.
12/47 Also circulating supply does not reflect the quantity of coins that have been lost forever or produced in the genesis block, which can’t be spent. So all those lost coins are presented in circulating supply right now.
13/47 Always check the circulating supply before you invest. You may think that “Ok, this coin is very cheap. Just $3. What if it becomes $100 in a year?” We think like this because all of us are trying to find the next Bitcoin to make us rich.
14/47 But did you make a simple comparison of the Quantitative aspects of that project? Ok, Bitcoin was less than a dollar back in the day but compare the circulating supply of the Bitcoin to the project you see as next Bitcoin.
15/47 We all saw the recent example of how many lazy people out there who follow the hype. The hype was too big that even some TV channels had some Finance Programs which showed you how to buy one specific coin.
16/47 You asked yourself “What if it becomes $10 or $50 in a year?” The circulating supply of that coin is more than 2000 times of Bitcoin.
17/47 You may dream of that coin being the next Bitcoin but even if it becomes $10000 one day, it means that the total Market Cap of that project will be more than the total supply of the whole monetary system of the world.
18/47 Does this sound realistic to you? Dream but be reasonable. I don’t expect a new project to exceed Bitcoin’s Market Cap in a short time. When you do your estimation on the price at least say the Market Cap can be as big as Bitcoin (for most out there this is not realistic).
19/47 For example, In that scenario the price can only be $7 for that coin, nothing more. So you barely double your investment if everything goes according to your plan. Which won’t happen…
20/47 Total Supply and Max Supply don’t affect the Market Cap but they are equally important. The Total Supply (fully distributed market cap) of a cryptocurrency gives you the total number of coins in existence.
21/47 This includes the circulating supply and also all the coins owned (from ICO or premined) by team/company, founder’s coins,coins which are reserved and issued over time as rewards to users and in some cases early investors of ICO who purchased these coins with huge discounts
22/47 If a coin is premined and those premined amount is currently locked up, reserved, or not able to be sold on the public this should not reflect the circulating supply and this is good information for you to predict future value through the circulating supply.
23/47 Every project that has vested/locked up coins have different model and it is good to keep track of these lock up periods. You have to know when and how many of these coins are going to be introduced to the circulation, so you can predict the short term movements accordingly
24/47 There is nothing wrong with this… Unless if those coins are not locked up for a period of time and there is no rule about how these coins will be introduced to the market in a period of time, there is a big problem.
25/47 If you are going to learn one thing from this article today, it should be the concept of total supply. This concept made me lose a lot of money in my early days. Don’t forget projects can lie about lock up periods. It is better if there is a 3rd party audit about it.
26/47 There is one famous project out there (I am not going to give the project name) had a huge wallet update planned and there was a great hype. The investors, including me, took the bait, started investing in this project, and drove the price up.
27/47 Suddenly, without any logical reason price started to drop. It dropped so sharp that nobody saw anything like that before. Nobody was expecting this. There was still couple of days until the wallet update and everybody got caught off-guard.
28/47 In the meantime, everybody rushed the project’s slack channel and asked questions about this price drop. The admins and advisors were giving them assurance and telling them to “STAY STRONG” and hodl.
29/47 We learned the real story after couple of days. Turns out the coins that were given to the advisors and the team had no lock-up period. One of the advisors, he was also one of the guys who told all the people on the Slack channel to stay strong, dumped 600k coins.
30/47 It was a blood bath. Many people lost faith to the project. They kicked him out of the advisory board but it was too late.
31/47 I learned my lesson and change my strategy. I started reading every project’s whitepaper or ICO information in detail and figure out why the team/company needs to reserve some coins.
32/47 If their reasons and number of the coins they reserve doesn’t make sense, it is a red flag to me. I understand they need these coins for future business operations, securing advisors,and in some cases use some % of these coins as a pool to give rewards to the platform users
33/47 Find projects which define the system very well and you can clearly see the distribution of the reserved coins and how they are going to be used in the future. Less coins they reserve/hold, the better but try to predict that they have enough to realize the project goals.
34/47 But be sure that they have a lock-up period and defined how many coins(and how often)are going to be added to the general circulation after the lock-up period.Especially ICOs can trick lazy investors very easily this way. You have to do your homework. Learn from my mistakes
35/47 Make sure that you check the Rich Lists and Distribution of the coins. You can check this information easily. Just go to CoinMarketCap website and click on the“Explorer”button. If the project is not listed on CMC yet, just ask the link at one of their communication channels
36/47 I see projects with great hype around them but when I check this information I see top 100 addresses keep 90% of the circulating coin supply. There are even some projects out there Top 10 addresses keep more than 60% of the circulating supply.
37/47 This is a huge red flag for me. Why? Because they can manipulate the market or dump on you anytime. But keep in mind that the project age is also a big factor in this. Let’s say there is a project with PoW mechanism.
38/47 There is no premine but some of the miners saw the potential in this coin before anyone else. In this scenario, if a project is still young, the distribution may appear as not fair.
39/47 In order to judge this project correctly, you have to analyse every aspect of the project and make an educated guess. If you are not satisfied, give it some time and check the distribution over and over again in time.
40/47 Let’s say top 100 addresses was keeping 80% of the circulating supply when the project was 2 months old. If this number decreases with time, it is a good sign.
41/47 Max Supply is the easiest one to understand. If a project is capped, there is a certain amount of coins there will ever be in the market after all the proofing is complete. For example, when you think about Bitcoin, the circulating supply is 17M BTC and max supply is 21MBTC
42/47 After all the mining is complete every project has different inflation model, block times, block rewards) there will only be 21 Million Bitcoins out there.Don’t forget the coins which are not in circulation (but presented in circulating supply) because they are lost forever
43/47 For example legendary Satoshi’s Bitcoins which he mined are part of the circulating supply.
44/47There is no Total Supply because there was no premine to reward the founder or a company behind it who reserved some coins from ICO or premined to use for the business operations and vested/locked them for a period of time.
45/47 So after all the coins are mined, the amount of coins which will be available for trading is going to be less than 21 Million. According to some researchers total number of Bitcoins that are lost forever could be up to around 3.8 Million.
fortune.com/2017/11/25/los…
fortune.com/2017/11/25/los…
46/47 There are also coins out there like Ethereum with no hard cap/max supply but a reasonable inflation model over time. I suggest you always add inflation model to your research.
47/47 It goes without saying but:
This is not an investment advice. Do your own research and never trust anyone with your money. Especially a bulldog :)
This is not an investment advice. Do your own research and never trust anyone with your money. Especially a bulldog :)
