In the crypto market, it can sometimes be difficult to assess the underlying value of a new crypto. There is often no cash or revenue stream to evaluate, and often no concrete measurement of how a particular cryptocurrency is performing. For this reason, many analysts are looking at the “token economy,” aka the tokenomics factor. Dominic Basulto, an analyst at the US-based consulting company The Motley Fool, also draws attention to this factor and talks about coins like Aptos and DOGE. Here are the details…
The analyst pointed to the “tokenomic” factor in the market to be considered
According to the analyst, the first step in the investment process should be to understand the tokenomic characteristics of a new cryptocurrency. A combination of the words “token” and “economy”, tokenomics refers to various factors that affect the economic value of a cryptocurrency. These factors include how the crypto is created, how it is distributed in the crypto market, and how it is removed from circulation. These economic factors are typically described in crypto’s whitepaper. In a time of market uncertainty and volatility, a good command of tokenomics can save you from investing in an overly speculative crypto.
A big mistake many investors make, according to Basulto, is to use market capitalization as the primary metric for judging the relative attractiveness of a particular cryptocurrency. The analyst uses the following statements:
They will check the list of top cryptocurrencies by market cap, notice that Dogecoin (DOGE) and Shiba Inu (SHIB) are both in the top 20 and conclude that they are potentially good investments. But as billionaire investor Mark Cuban points out, market cap is an easily manipulated number in the crypto world. All you have to do is create a huge supply of 1 billion coins. Even if a coin is traded at just $1, it can still reach an impressive market cap of billions of dollars.
Analyst: SHIB will not be a good investment in the long run
A good example is the Shiba Inu, which currently has a market cap of over $5.5 billion, ranking it as the 14th largest crypto. The meme coin’s value is roughly equivalent to a stock like Hertz Global Holdings, which also has a market cap of $5.5 billion. However, pointing out that Shiba Inu’s total circulating coin supply is “breathtakingly large,” the analyst says, “there are more than 549 trillion coins in circulation, and as a result, the Shiba Inu is still trading at the ridiculously low price of $0.00001.” As a result, “Shiba Inu will not be a good long-term investment until it can burn hundreds of trillions of coins,” according to the analyst.
VC-backed coins like Aptos, SOL may not be a good investment either.
According to the analyst, if there is one lesson learned from the FTX meltdown last year, it is that the tokenomic factor can be used to assess the future value of a crypto. The best example here is as the financial situation surrounding Solana FTX continued to worsen in November, crypto investors took a closer look at who owns Solana tokens. In connection with Solana’s VC funding, as we reported on Kriptokoin.com, former FTX CEO Sam Bankman-Fried and various FTX affiliated entities (such as hedge fund Alameda Research) were major owners of Solana coins.
As a result, when FTX exploded, concern grew that these assets would suddenly sell all their Solana coins for liquidity in a panic. This is why Solana was one of the worst crypto performing coins of 2022. Also, this is why so much interest has been shown in the new crypto Aptos (APT) when it started trading late last year. Like Solana, Aptos was a VC-funded cryptocurrency with support from Sam Bankman-Fried and FTX. When Aptos was launched, there was tremendous concern that insiders could control too much of the coin’s total supply, with a large portion of the total circulating supply going to developers, private investors and the Aptos Foundation.
Analyst not considering investing in Aptos
According to the Aptos whitepaper, the total supply of Aptos is at a staggering 1 billion coins. There are currently only 172 million coins in circulation, so there are more than 800 million coins. By comparison, Bitcoin’s total limited supply is just 21 million tokens. The analyst uses the following statements:
Considering the dubious token economy here, I still don’t think about investing in Aptos, even though it’s up a dizzying 190 percent this year. As far as I can see, Aptos’ massive coin supply will completely subvert the market in the coming years. When the 12-month “lock-in period” of coins issued to private investors ends this October, there could be massive sales by insiders trying to make huge profits.
As a result, the bad token economy can completely affect the value of a coin to the point where even a good crypto project is not worth investing in. As such, the analyst states that he is “deeply skeptical of any crypto with a circulating supply of 1 billion or more coins.” “The next time you hear about a cryptocurrency, the first thing you should do is look at how many coins are in circulation,” he adds.
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