Crypto metrics that every investor must know

Metrics are numbers that investors use to decide whether to buy, sell or hold a cryptocurrency.

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! If you are a serious investor, you must know about these 5 types of metrics:

R = ROI & 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 & 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. (Source: Future Money Wallet)

Bitcoin RoI

Risk metrics

Cryptocurrency prices are notorious for large upward and downward swings.

The 2 important crypto risk metrics are volatility and Sharpe ratios.

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 4 cryptos - Bitcoin, Ether, USDT, and XRP. As expected USDT, which is a stablecoin, has virtually zero volatility. (Source: Future Money Wallet)

Volatility of Bitcoin, Ether, USDT and XRP

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 e.g. 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 & low prices over the last 24 hours, 7 days, 30 days, 90 days, and 52 weeks.

The graph below shows the Bitcoin prices over the last 52 weeks. (Source: Messari)

BTC prices

H = Holders Stats

You've probably heard of the term "whales". They are addresses that own more than 1% 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 capitalization.

Supply

Circulating Supply 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 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 is 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.

Capitalization

Market Capitalization is the total market value of a crypto's circulating supply.

Market Capitalization = Circulating Supply x Current Price

Historically, Bitcoin (BTC) has always had the highest market capitalization and Ethereum the second highest.

Fully Diluted Market Capitalization (FDMC) is the market capitalization if the maximum supply was in circulation.

FDMC = Price x Max Supply

If the maximum supply is unknown or unlimited, like in ETH, then:

FDMC = Price x 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 e.g. 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:

Velocity = 24h Volume / 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. (Source: Future Money Wallet)

Velocities of some of the fastest cryptos

There are also wrapped cryptos that are pegged to assets like commodities, equities, intellectual property, etc. 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.


Next: How to pick good cryptos using the ROHAS Crypto Valuator