Formulating The Optimum Speculation Theory

[CoinHoarder]

Welcome to my thread, where I intend to formulate the optimum speculation theory.
Your participation is more than welcome!

Next stop... Moon!

The purpose of posting my thoughts on the topic is to seek out dissenting opinions, in hopes that I can improve my own thought process on the topic. Some of the OP is poorly worded and should be considered a rough draft. Furthermore, I have not finished covering all of the topics that I feel like should be covered, so the OP should be viewed as being incomplete. This should not be considered investment advice. Do your own thorough research, and form your own opinions independently.

Words To Live By:

• Never invest more than you can afford to lose.
• Never go "all in" on any certain alternative cryptocurrency.
• Never leave more then you can afford to lose on centralized exchanges.
• Never trust anyone, ever. Do your own thorough research (profitable speculation is not easy.)
• Putting your holdings in cold wallets provides nice peace of mind.
• Diversify your cryptocurrency portfolio as you would diversify a portfolio of stocks.
• Do not purchase a cryptocurrency when it is on a abnormally huge uptrend.
• Do not be greedy, start to take your profits when you're "in the black".

Optimum Speculation Theory:
1. Before speculating in cryptocurrencies, it is important make sure that your are properly hedged outside of cryptocurrencies. Diversification is key to any investment strategy.
    1a. The proportions, as to how much or how little you are hedged, can vary depending on your own personal situation and risk tolerance.
    1b. A combination of FIAT, commodities, stock, and other investments should be used to hedge your cryptocurrency investments.
    1c. Many theorize that if Bitcoin were to fail for some reason, then the entire alternative cryptocurrency industry would die along with it. Whether this is true or not, I personally can see both sides of the argument, it certainly seems plausible that people would have trouble trusting cryptocurrencies if the "flagship" cryptocurrency were to die.
    1d. Assuming you are properly hedged, in the event of a prolonged cryptocurrency bear market, you will have a sufficient amount of buying power to bolster your cryptocurrency positions. Which greatly reduces your costs per coin per cryptocurrency, and increases your trading profits when you sell "in the black".

2. Network effects have a very positive effect on the market dynamics of a cryptocurrency. Thus, I posit that "network effected" coins are "safer" investments than newer (or more speculative) alternative cryptocurrencies that have not yet garnered a network effect of their own.
    2a. In my opinion there are only a few "network effected" coins... such as Bitcoin, Litecoin, Dogecoin, and Ethereum, in that specific order. There are several other coins which are debatable to be added to that list, but the power of the network effect drops off exponentially from level to level. Bitcoin's network effect eclipses all other cryptocurrencies' network effects. As you go down the list from "most network effected" cryptocurrencies to "least network effected" cryptocurrencies, the power of the network effect on each cryptocurrency is reduced drastically.
    2b. Network effect can be estimated by considering an arbitrary mixture of the following: amount of main stream news coverage (if a cryptocurrency is in main stream news often, then it is more likely potential buyers/investors will discover it or be reminded to buy some), amount of cryptocurrency-specific news outlets' coverage, cryptocurrency forums presence (number of threads, members, and activity across all forums), respected in the cryptocurrency community (if it's not respected then it is challenging to obtain a large network effect), and size of 24 hours market volume (low volume indicates low popularity or low usage).
    2c. Since I consider "network effected" coins as being safer investments, I believe you should put a larger percentage of your cryptocurrency portfolio in them. I personally prefer to have around 50% to 75% of my portfolio in network effected cryptocurrencies, with the rest in a basket of riskier alternative cryptocurrencies that show real promise. However, these proportions obviously should depend on your risk tolerance and personal situation.
    2d. Using similar logic regarding "network effected" being safer investments, I also further diversify the "safer" portion of my portfolio. I suggest using similar proportions as you do for your entire cryptocurrency portfolio for your "safe portfolio", which again depends on your risk tolerance. I prefer keeping 50% to 75% of my "safe portfolio" in what I consider the "safest" cryptocurrency investment that exists today (due to the above logic)... Bitcoin, with the other 50% to 25% made up of other highly "network effected" alternative cryptocurrencies.

3. When filling out the "risky" portion of your portfolio, staying away from "scamcoins", "shitcoins", etc. (everyone has their own name for them,) is key to a successful investment strategy. Investing in "scamcoins" is similar to setting money on fire. Unfortunately, separating the "scamcoins" from quality investments that have potential is no easy task and there is no exact science.
    3a. It is not easy to speculate in "risky" alternative cryptocurrencies. It takes a lot of work. Whether it be time spent researching, or simply staying on top of the market by watching the values and value trends of each cryptocurrency. As if it is not hard enough to locate a good investment that is not high up in the market capitalization rankings, you then must stay on top of what the market is doing at all times because things change rather quickly. These "risky" cryptocurrencies can be pumped up to 100-300%+ in a matter of days or hours, and fall back down to earth in the same amount of time or less. Missing out on profitable opportunities is simply not a winning proposition, as taking profits is key to profitable speculation.
        3a1. If you do not have the time to spend to properly speculate in "riskier" cryptocurrencies, then I suggest only investing in highly "network effected" cryptocurrencies which require much less work to evaluate and stay on top of. Eliminating the "risky" portion of your portfolio is better than blindly investing in "risky" cryptocurrencies if you do not have the time or the will to put in the work.
    3b. Cryptocurrencies that are more fairly distributed have a much higher success rate. Premines, instamines, etc... constitute as a permanent black eye on any certain cryptocurrencies, and are not words that you want associated with any cryptocurrency you invest in. Some cryptocurrencies seem to be able to overcome this factor, but it is very rare, and it takes extremely solid marketing, development, or innovation.
    3c. For all existing cryptocurrencies, I suggest eliminating all cryptocurrencies under approximately the 125 to 150 mark on market capitalization rankings. 99% of the time there is a reason for the cryptocurrency having such a low market capitalization, and no you and I are not smarter than all of the minds that consist of the free market combined. As you go further down the rankings, the risk becomes greater, but in turn the potential reward increases if you happen to find a diamond in the rough.
    3d. Is the cryptocurrency innovative? If you answer no to this question, then it is likely a "scamcoin", and you should stay away from it. It will take truly innovative cryptocurrencies to break the network effects of the more established and "network effected" cryptocurrencies. Be weary of non-descriptive buzzwords such as "secure", "decentralized", "fast confirmations", etc. as all innovative cryptocurrencies that are worth anything share these properties, and this is just marketing-speak. Be weary of gimmicks. How does the cryptocurrency improve upon past iterations, or does it introduce a whole new concept (or market) to the cryptocurrency space?
    3e. Does the cryptocurrency fill a market or niche, and how competitive within the cryptocurrency space is that market/niche? If you believe that there will not be one cryptocurrency to rule them all (or even a few), then you should pay attention to what market the cryptocurrency is targeting. Some cryptocurrencies target markets that are already somewhat saturated. The way network effects work, each market realistically can only contain a few successful cryptocurrencies. Really, using the words "a few" in the previous sentence is pushing it.
        3e1. Decentralized data storage, programming languages, privacy and anonymity, gaming related, exchanges, markets, social networks, internet, email, voice/video/text chat, VPNs, and "jack-of-all-trades" are all examples of different markets, but that is definitely not a complete list.
    3f. Dedicated and skilled developers are key to a successful cryptocurrency. Without them a cryptocurrency does not stand a chance. Taking a peak at a cryptocurrency's github activity can give a great indication as to how dedicated and active the development is. Do not take this point lightly. If a cryptocurrency does not have dedicated and skilled developers then you should not invest in it, as it is fighting an uphill battle.
    3g. Consider all dynamics that make a cryptocurrency valuable and/or "speculate-able". A cryptocurrency's value is derived by the public perception of that certain cryptocurrency, since the value is found by the consensus of the free market. I posit that this public perception is a complicated combination of numerous factors. Many people believe that they know the answer, and almost just as many are probably wrong. If you can figure out the answer, or even an answer similar to the correct answer, then you will be a very rich man. Everyone thinks they know the answer, but the truth is that mostly everyone is fooling themselves because most do not. All factors should be considered when weighing whether or not to invest in a cryptocurrency, and each person should figure out how important (or not) each factor is.
        3g1. These factors include, but are not limited to (in no certain order): consensus algorithm, network effect, "scalability", transaction speeds, blockchain bloat, voting, programming languages, number of exchanges you can trade it at (and the credibility/volume of the exchanges), liquidity and volume, privacy/anonymity, merge "mine-able", decentralized exchange, in-wallet block explorer, recurring payments, decentralized markets, atomic transactions, stealth addresses, confidential transactions, ring signatures, telepods, masternodes, self-funding development, "hire-able" employees, merchant acceptance, payment processors, hot wallets, light wallets, mobile wallets, market pegged assets/cryptocurrencies, stable cryptocurrencies/assets, multi-signature addresses, file storage, TOR/I2P compatibility, decentralized application stores/browsers, solid developers, innovative features, fair distribution, large supportive and productful community, and having a target market or plan for establishing network effect.
   3h. Be extremely weary of IPOs. Many great cryptocurrencies have come from them, but at the same time there have been a lot of scams. If the developers and/or organizers are anonymous, or even pseudonymous, then it is probably not a good idea to invest. Thoroughly research each developer's/organizer's credentials, experience, and reputation. Make sure there is an exact "road map" (or plan) as to how a cryptocurrency will be further developed, and how the funds from the IPO will be used. Also, pay attention to how the initial distribution will be allocated (some allocate certain percentages to development, giveaways, marketing, etc.)
   3i. Be weary of everything really. Price and volume are easily manipulated, as are forums, news outlets, and social media. Be weary of everything and everyone, and do your own thorough research. There is no such thing as doing too much research. Knowledge is power.
   3j. Make sure there is a "road map" (or plan) as to how a cryptocurrency will be further developed in the future. Make sure that road map is feasible, including on a technical level and because of time restraints. Make sure that it is possible to conceive in the first place, and that the technology is better (or comparable) to other cryptocurrencies. Also note time restraints. (IE. Can this project be conceived in a reasonable time frame?) Shareholder governance features such as voting may negate these requirements, but then you still need to vett what shareholders are voting, as they are still susceptible to making incorrect decisions (the majority is not always correct, or informed enough to make a correct decision.)

To be continued... check back for future additions and edits to the optimum speculation theory.

[e-coinomist]

Optimum Speculation Theory:

I am going along most of the theories from above but would like to define "what is trading?" first. Hmyes, "Trading" not "Speculation" slightly different viewpoint. This is manual labor and not gambling.

So what does a trader do, basically? Shifting weights between ballances. Example:

• 2015-1-19 daily low has been 203 USD/BTC. Shifting weights, formerly 100% FIAT hold inside portfolio is moving into 100% Bitcoins, to be hold. New FIAT weight: 0%
• 2015-11-4 daily high 504 USD/BTC, moving 100% BTC onto the sale side of the market, ending up with 100% FIAT, to be hold. An ideal example.

More often one has 25% FIAT vs. 75% BTC and moves like 10% between these two. Moving everything, going all-in or all-out will soon get defeated by the market. Markets never move along your mind powers, bear with that!
So CoinHoarder, you have been missing one crucial speculation "Coin" from your first posting! Actually two, since FIAT can be Renminbi or Dollars in Bitcoincountry. Some huge daily trade volume takes place in China. Oh, I am european but do not even mention the EUR currency, go figure. (and I might need a translator or lector)

So don't forget to ballance FIAT vs. "Crypto" first, then starting to subdivide into "quality coins" featuring huge marketcap, later adding baskets full of so-called "Shitcoins" at your leisure (or tragedy). Then work your body out by Shifting weights between ballances on a daily basis. Move your ballance, shift it around, go for coins showing weak days and remove overweight ballances from the strong ones. The effect on the market this behavior will show? Nivelating the bumpy rides of the bigger coins mostly. These kind of trades cause no harm.

[CoinHoarder]

2 ancient proverbs about fool and money soon parted:

always start take profits when in black

only trust others who have money where mouth is and skeptic of those who say how to invest without public proof

https://bitcointalk.org/index.php?topic=1354286.0

Two very good points... thank you for the recommendations. I will add some variation of these to the "words to live by" section.

I am going to leave the first one pretty much as is, but fix the broken English, and amend the second one to say "Never trust anyone, ever. Do your own thorough research (profitable speculation is not easy.)"

What do you think? Thank you for your input.

[CoinHoarder]

Optimum Speculation Theory:

I am going along most of the theories from above but would like to define "what is trading?" first. Hmyes, "Trading" not "Speculation" slightly different viewpoint. This is manual labor and not gambling.

So what does a trader do, basically? Shifting weights between ballances. Example:

• 2015-1-19 daily low has been 203 USD/BTC. Shifting weights, formerly 100% FIAT hold inside portfolio is moving into 100% Bitcoins, to be hold. New FIAT weight: 0%
• 2015-11-4 daily high 504 USD/BTC, moving 100% BTC onto the sale side of the market, ending up with 100% FIAT, to be hold. An ideal example.

More often one has 25% FIAT vs. 75% BTC and moves like 10% between these two. Moving everything, going all-in or all-out will soon get defeated by the market. Markets never move along your mind powers, bear with that!
So CoinHoarder, you have been missing one crucial speculation "Coin" from your first posting! Actually two, since FIAT can be Renminbi or Dollars in Bitcoincountry. Some huge daily trade volume takes place in China. Oh, I am european but do not even mention the EUR currency, go figure. (and I might need a translator or lector)

So don't forget to ballance FIAT vs. "Crypto" first, then starting to subdivide into "quality coins" featuring huge marketcap, later adding baskets full of so-called "Shitcoins" at your leisure (or tragedy). Then work your body out by Shifting weights between ballances on a daily basis. Move your ballance, shift it around, go for coins showing weak days and remove overweight ballances from the strong ones. The effect on the market this behavior will show? Nivelating the bumpy rides of the bigger coins mostly. These kind of trades cause no harm.

I agree with what you are trying to convey here. However, I kind of alluded that "never invest what you can afford to lose" means that you should keep some FIAT reserves.

Perhaps I should add what you have brought up here as the first rule of speculation theory to make sure that is clear. In fact... I am certain I will do that.

I also replaced "Never invest more than you can afford to lose in any specific alternative cryptocurrency." with "Never go "all in" on any certain alternative cryptocurrency." I think that explains what I meant by that statement better. I already said don't invest more than you can afford to lose in the first point, so it was kind of redundant.

The rest of the topics in your post I plan to cover on future installments of the optimum speculation theory. Such as shifting balances, taking profits, etc...

Thanks for your suggestion!

Edit: What do you think of my summation?

1. Before speculating in cryptocurrencies, it is important make sure that your are properly hedged outside of cryptocurrencies. Diversification is key to any investment strategy.
    1a. The proportions, as to how much or how little you are hedged, can vary depending on your own personal situation and risk tolerance.
    1b. A combination of FIAT, commodities, stock, and other investments should be used to hedge your cryptocurrency investments.
    1c. Many theorize that if Bitcoin were to fail for some reason, then the entire alternative cryptocurrency industry would die along with it. Whether this is true or not, I personally can see both sides of the argument, it certainly seems plausible that people would have trouble trusting cryptocurrencies if the "flagship" cryptocurrency were to die.
    1d. Assuming you are properly hedged, in the event of a prolonged cryptocurrency bear market, you will have a sufficient amount of buying power to bolster your cryptocurrency positions. Which greatly reduces your costs per coin per cryptocurrency, and increases your trading profits when you sell "in the black".

[CoinHoarder]

later adding baskets full of so-called "Shitcoins" at your leisure (or tragedy).

I would like to comment on one other thing from your post. I believe the term "shitcoin", "scamcoin", etc. is overused around here. A lot of people wrongly lump all alternative cryptocurrencies in this category.

I plan on distinguishing the difference in between "scamcoins" and alternative cryptocurrencies that show real promise in a future installment of the optimum speculation theory. There is a lot that goes into establishing a cryptocurrency's value, and there are many factors that can be used to separate the "scamcoins" from the alternative cryptocurrencies that show real promise (and thus a potential future.)

Staying away from the true "scamcoins" is key to an optimum speculation strategy, as investing in them is similar to lighting money on fire.

[CoinHoarder]

My rough draft as to how to determine a "scamcoin" from a cryptocurrency that can potentially be valuable one day (added to the OP):

3. When filling out the "risky" portion of your portfolio, staying away from "scamcoins", "shitcoins", etc. (everyone has their own name for them,) is key to a successful investment strategy. Investing in "scamcoins" is similar to setting money on fire. Unfortunately, separating the "scamcoins" from quality investments that have potential is no easy task and there is no exact science.
    3a. It is not easy to speculate in "risky" alternative cryptocurrencies. It takes a lot of work. Whether it be time spent researching, or simply staying on top of the market by watching the values and value trends of each cryptocurrency. As if it is not hard enough to locate a good investment that is not high up in the market capitalization rankings, you then must stay on top of what the market is doing at all times because things change rather quickly. These "risky" cryptocurrencies can be pumped up to 100-300%+ in a matter of days or hours, and fall back down to earth in the same amount of time or less. Missing out on profitable opportunities is simply not a winning proposition, as taking profits is key to profitable speculation.
        3a1. If you do not have the time to spend to properly speculate in "riskier" cryptocurrencies, then I suggest only investing in highly "network effected" cryptocurrencies which require much less work to evaluate and stay on top of. Eliminating the "risky" portion of your portfolio is better than blindly investing in "risky" cryptocurrencies if you do not have the time or the will to put in the work.
    3b. Cryptocurrencies that are more fairly distributed have a much higher success rate. Premines, instamines, etc... constitute as a permanent black eye on any certain cryptocurrencies, and are not words that you want associated with any cryptocurrency you invest in. Some cryptocurrencies seem to be able to overcome this factor, but it is very rare, and it takes extremely solid marketing, development, or innovation.
    3c. For all existing cryptocurrencies, I suggest eliminating all cryptocurrencies under approximately the 125 to 150 mark on market capitalization rankings. 99% of the time there is a reason for the cryptocurrency having such a low market capitalization, and no you and I are not smarter than all of the minds that consist of the free market combined. As you go further down the rankings, the risk becomes greater, but in turn the potential reward increases if you happen to find a diamond in the rough.
    3d. Is the cryptocurrency innovative? If you answer no to this question, then it is likely a "scamcoin", and you should stay away from it. It will take truly innovative cryptocurrencies to break the network effects of the more established and "network effected" cryptocurrencies. Be weary of non-descriptive buzzwords such as "secure", "decentralized", "fast confirmations", etc. as all innovative cryptocurrencies that are worth anything share these properties, and this is just marketing-speak. Be weary of gimmicks. How does the cryptocurrency improve upon past iterations, or does it introduce a whole new concept (or market) to the cryptocurrency space?
    3e. Does the cryptocurrency fill a market or niche, and how competitive within the cryptocurrency space is that market/niche? If you believe that there will not be one cryptocurrency to rule them all (or even a few), then you should pay attention to what market the cryptocurrency is targeting. Some cryptocurrencies target markets that are already somewhat saturated. The way network effects work, each market can realistically only contain a few successful cryptocurrencies. Really, using the words "a few" in the previous sentence is really pushing it.
        3e1. Decentralized data storage, programming languages, privacy and anonymity, gaming related, exchanges, markets, social networks, internet, email, voice/video/text chat, VPNs, and "jack-of-all-trades" are all examples of different markets, but that is definitely not a complete list.
    3f. Dedicated and skilled developers are key to a successful cryptocurrency. Without them a cryptocurrency does not stand a chance. Taking a peak at a cryptocurrency's github activity can give a great indication as to how dedicated and active the development is. Do not take this point lightly. If a cryptocurrency does not have dedicated and skilled developers then you should not invest in it, as it is fighting an uphill battle.
    3g. Consider all dynamics that make a cryptocurrency valuable and/or "speculate-able". A cryptocurrency's value is derived by the public perception of that certain cryptocurrency, since the value is found by the consensus of the free market. I posit that this public perception is a complicated combination of numerous factors, and no one truly knows the correct answer. If you can figure out the answer, or even an answer similar to the correct answer, then you will be a very rich man. Everyone thinks they know the answer, but the truth is that everyone is fooling themselves because no one truly knows.  All factors should be considered when weighing whether or not to invest in a cryptocurrency, and each person should figure out how important (or not) each factor is.
        3g1. These factors include, but are not limited to (in no certain order): consensus algorithm, network effect, "scalability", transaction speeds, blockchain bloat, voting, programming languages, number of exchanges you can trade it at (and the credibility/volume of the exchanges), liquidity and volume, privacy/anonymity, merge "mine-able", decentralized exchange, in-wallet block explorer, recurring payments, decentralized markets, atomic transactions, stealth addresses, confidential transactions, ring signatures, telepods, masternodes, self-funding development, "hire-able" employees, merchant acceptance, payment processors, hot wallets, light wallets, mobile wallets, market pegged assets/cryptocurrencies, stable cryptocurrencies/assets, multisignature addresses, file storage, TOR/I2P compatibility, decentralized application stores/browsers, solid developers, innovative features, fair distribution, large supportive and productful community, and having a target market or plan for establishing network effect.

[sandiman]

Very interessting thread!! Thanks for sharing information

I was wondering if you coukd apply all your ideas to an example, let's say Ethereum that is now on all the mouth.

what would you recommend about this coin using all the mentionned point?

Thank again for sharing your ideas.

[gjhiggins]

If you can figure out the answer, or even an answer similar to the correct answer, then you will be a very rich man.

That might be arguably true in some contexts but not in the context outlined here.


Cheers

Graham

[TPTB_need_war]

Congrats on starting your own thread and blazing your own path. Now you are starting to understand how to not be a B-lister. Go forge your own audience and passion. Good luck.

[VultureFund]

Much words, many useless information...


You're in the wrong focus man. If you want to speculate, learn about market manipulation tactics.

Manipulation in crypto represents +90% of everything. If you ignore manipulation you clearly don't understand anything and your theory will only represent the 10% of reality, so it will be completely useless.

[CoinHoarder]

Much words, many useless information...


You're in the wrong focus man. If you want to speculate, learn about market manipulation tactics.

Manipulation in crypto represents +90% of everything. If you ignore manipulation you clearly don't understand anything and your theory will only represent the 10% of reality, so it will be completely useless.

I think it is immoral to manipulate the markets, or partake in social manipulation by utilizing deceptive practices such as shilling, sock puppets, and other methods.

It is one thing if someone makes a decision to buy or sell any certain cryptocurrency, and comes to that conclusion on their own. However, it is a whole different story  if you purposefully try to manipulate someone into making a decision that will cause them financial harm.

I am morally against such practices. I have never partook in them, and this thread will not condone such actions.

[CoinHoarder]

Very interessting thread!! Thanks for sharing information

I was wondering if you coukd apply all your ideas to an example, let's say Ethereum that is now on all the mouth.

what would you recommend about this coin using all the mentionned point?

Thank again for sharing your ideas.

I would like to keep this thread cryptocurrency neutral.

However, I will point you towards one of the "Words To Live By" in the OP:  "Do not purchase a cryptocurrency when it is on a huge abnormal uptrend."

[CoinHoarder]

It seems that the moderators have removed my self-moderating privileges for my thread. I had not utilized the privileges, but it is annoying at the same time, considering all it takes is one troll to ruin a good thread.  

Please everyone stay courteous and on topic.

[CoinHoarder]

I decided to publicly respond to a PM regarding the OP, as I feel like it would help clarify some of the points I tried to make in the OP.

Only half-humorous.

- Feel free to share your opinion as to what I may be wrong on. Without you completely outlining your theory, it is hard for me to see exactly where I may be wrong, or even refute my points if I still feel like I am right after acknowledging yours.

I respect the effort you've put into this, I'm just trying to prod you into solidifying your arguments. There's absolutely nothing personal about this, other than I'm genuinely seeking countervailing views against which to contrast my own model. I don't see any point in me wasting my time exploring directions which might seem seductively-appealing but ultimately prove unprofitable which I would have otherwise avoided had I a better model.

Thank you, that is the main reason why I have posted this as well.... to get feedback from others so I can improve my own model or theory. Maybe it will help some newcomers not set their money on fire too...

Just on a “feet firmly applied to ground” basis: one issue which should be a complete showstopper for any mention of the verb “invest” (and any of its roots):

ALL altcoin market data is obtained from unregulated sources. IT IS PROFOUNDLY UNRELIABLE. Any analogy with strongly-regulated domains such as stocks and shares or even international currency markets is in danger of obscuring this fundamental and crucial difference.

The term that should be used is “wager” or “gamble” and this context should be omnipresent in any deliberations.

Good point, and I agree with you this. I will reword the OP to state "speculate" which I feel is more appropriate than "wager" or "gamble".

I don't like to words "wager" or "gamble" because my speculation strategy involves much more than blind luck. It is through a lot of hard work and research that I decide which cryptocurrencies I will invest in. I liken it to poker. It is technically still gambling, but you can increase your edge quite a bit by increasing your skills at it by practice and study.

Unfortunately, separating the "scamcoins" from quality investments that have potential is no easy task and there is no exact science.

I get your point but how does it help? It may be litotes rather than hyperbole but the statement remains mere rhetoric.

My intent of this statement is to elaborate as to how much work is required, and that no matter how much work you put in you may still end up being wrong. These were two points I tried to say multiple times in different ways, to make sure that I got those points across, because I feel like it is important to understand those things.

In my opinion there are only a few "network effected" coins... such as Bitcoin, Litecoin, and Dogecoin,
...
I suggest only investing in highly "network effected" cryptocurrencies

That's a feed line if I ever saw one ... What criteri[on|a] do you use to classify Bitcoin, Litecoin and Dogecoin as “network effect” coins? Do *any* other alts cut the mustard here?

I am not sure what a "feed line" is. If you mean this: (http://idioms.thefreedictionary.com/feed+a+line) then I can assure you it is not my intention to convey something that I didn't think is true.

Bitcoin is obviously the greatest "network effected" cryptocurrency. It is the only cryptocurrency that is repeatedly reported on by mainstream news outlets, and is the only cryptocurrency with any resemblance of household name recognition. Silk Road, Mt. Gox, The Bubble, The inventor of blockchain technology, Satoshi Nakamoto, and Bitcoin itself are all Bitcoin-related topics that mainstream news has covered. The same cannot be said for any other cryptocurrency.

With that being said, I posit that there are multiple network effects of varying degrees of strength. I consider some of the "sleeping giants of yesteryear" (LTC, PPC, NMC) to be pretty well "network effected" inside the cryptocurrency community. Which is why I conclude that several other cryptocurrencies earn spots in the "network affected" categories. Admittedly, I was pretty strict in the OP when determining "network effected" coins, but I do think there are other coins that fall just inside or outside of this category.

Other than the "sleeping giants", I would consider Doge to have a decent network effect with common everyday people and Reddit through the Doge community. I would consider Ethereum to have pretty well "network effected" smart contracts, as there are several other cryptocurrencies with similar capabilities and they are a fraction of Ethereum's market capitalization. I would consider Nxt and Bitshares to have "network effected" the PoS-supporting community as two of the most popular PoS cryptocurrencies. Etc.

There reason why I cut the list short with only BTC, LTC, and DOGE in the OP is because I feel like each rung you go down in the "network effected" rankings the less important it gets, and the less strangth the network effect has. Perhaps I should reword that part however to make sure it is clear that it is possible for other cryptocurrencies also gain their own network effects for various reasons.

Cryptocurrencies that are more fairly distributed have a much higher success rate.

How confident are you that everyone else fully understands what YOU mean by “fair”?

I am not completely sure to be honest, this is probably something I could elaborate on as well. Some people consider all coins with a premine (therefore all PoS coins) or instamine unfair. I am not one of those people. To me, as long as everyone has a chance to donate or participate to receive a portion of the premine, then everyone had a "fair" shot. I even consider premines or block subsidies for development and other things as being fair, depending on if the money is used wisely and efficiently or not.

Some (or most) people would probably not agree with me on those points, so I wanted to make sure that goes into the equation, because I do think that it has some effect on the future evaluation of a cryptocurrency. For instance, I think that cryptocurrencies with blatantly unfair distributions have no chance at success or survival... coins like Dash or Bytecoin. Historically, that has been proven to be the case and I feel like it is only a matter of time for those cryptocurrencies.

Is the cryptocurrency innovative?

See above.

 
I tried to elaborate on that in the OP... was I not clear enough? To me being innovative is doing something different that has never been done before, whether it be a new technology or a different take on an old technology. Cryptocurrencies that copy other cryptocurrencies tit for tat have little chance as success. Dogecoin is one of the only exceptions that comes to mind, and I certainly would not bet against this not being the case.

Decentralized data storage, programming languages, privacy and anonymity, gaming related, exchanges, markets, social networks, internet, email, voice/video/text chat, VPNs, and "jack-of-all-trades" are all examples of different markets

**Definitely** see above ('cos “exchanges, markets, social networks” ... “are all examples of different markets”)

I am not sure what you're getting at here. I clearly specified that decentralized exchanges (cryptocurrency exchanges.. Bitshares, InstaDEX, B&C Exchange, Etc.), decentralized markets (Syscoin, Bitbay, Shadowcoin, etc.), and social networks (Synereo and apparently TPTB's coin) are examples of different markets. They are going after such different markets that I fail to see how they couldn't be "examples of different markets". Perhaps I could elaborate on each market to specify why they clearly have different road maps and trajectories?

Dedicated and skilled developers are key to a successful cryptocurrency.

I believe that your supporting argument here can only be conjectural in nature because it isn't actually true as stated and so there isn't any factual support to be found. IMO, a dedicated dev should be viewed as a significant *weakness* in a coin.

It doesn't make any sense to me why having dedicated and skilled developers would be a weakness to a cryptocurrency. If a cryptocurrency had none, then it would be stuck in the same shape a decade down the road as it is today. Technology, and more specifically the cryptocurrency space, is evolving rapidly. I fail to see how having a dedicated and skilled developer to keep the cryptocurrency on the cutting edge of blockchain technology can be a bad thing. Not to mention, who will provide the necessary security updates if a cryptocurrency didn't have anyone to provide them? This argument doesn't make any sense to me and I don't see where you're going with it.

A cryptocurrency's value is derived by the public perception of that certain cryptocurrency, since the value is found by the consensus of the free market.

Sure, and which “free market” would that be exactly?

(According to my model, the altcoin domain seems to exhibiting a collective failure to fully appreciate the significance of differing perceptions of “value”.)

Each cryptocurrency is judged separately in their own free market every day. With every buy and every sell, the cryptocurrency is being judged. However, that's not to say there is some (or a lot) of overlap in the way people derive value for alternative cryptocurrencies. I think all cryptocurrencies are all judged on similar criteria, and some of it overlaps judgement of other cryptocurrencies. Such as network effects, who innovated what feature, who is the one to beat in what market, what cryptocurrencies have the same features and which cryptocurrency out of that group is a better pick.

I am fully aware that there are differing perceptions of value. I see it every day on these forums. That is why I like to diversify my portfolio, because if I am being honest with myself I am not entirely sure which group is correct. I think like any investment strategy, diversification is key to hedging your bets against the unknown factors that surely exist in alternative cryptocurrency speculation.

++ I posit that this public perception is a complicated combination of numerous factors, and no one truly knows the correct answer.

No prizes for stating the bleeding obvious.

Well, it is my belief that some people truly think they know the answer and wrongly feel like they can tell the future. At least, reading these forums it would lead you to believe that. I even think some otherwise sensible and "established" people on these forums believe they know for sure.

++ Everyone thinks they know the answer, but the truth is that everyone is fooling themselves because no one truly knows.

Straw man, you haven't got any support for your assertion “everyone thinks” -- and fwiw, I think I know **an** answer.

Meh, the way people converse on the forums it leads me to believe that at the very least SOME people think that. Unless everyone is shilling 24/7... which wouldn't surprise me either. As stated up-post, I repeated a couple things multiple times in different words to make sure I got certain points across. This was one of my points... that is is very hard, if not impossible, to come to a correct conclusion as to what will happen in the future with a valuation of any said cryptocurrency, and that is why I am preaching diversification.

These factors include, but are not limited to (in no certain order):

consensus algorithm, got the technical chops to assess this??
network effect, can this even be defined, let alone measured?
"scalability", got the technical chops to assess this??
transaction speeds, under what conditions?
blockchain bloat, got the technical chops to assess this??
voting, is this even a thing?
programming languages, got the technical chops to assess this??
number of exchanges you can trade it at, got the accurate and reliable data to assess this??
the credibility/volume of the exchanges, got the accurate and reliable data to assess this??
liquidity and volume, got the accurate and reliable data to assess this??
privacy/anonymity, got the technical chops to assess this??
merge "mine-able", with which other cryptocurrency?
decentralized exchange, got the technical chops to assess this??
in-wallet block explorer, trivial plug-in for most alts
recurring payments, got the technical chops to assess this??
decentralized markets, got the technical chops to assess this??
atomic transactions, got the technical chops to assess this??
stealth addresses, got the technical chops to assess this??
confidential transactions, got the technical chops to assess this??
ring signatures, got the technical chops to assess this??
telepods, what?
masternodes, got the technical chops to assess this??
self-funding development, got the verifiable data?
"hire-able" employees, total non-starter
merchant acceptance, got the accurate and reliable data to assess this??
payment processors, got the accurate and reliable data to assess this??
hot wallets, what about hot wallets?
light wallets, got the technical chops to assess this??
mobile wallets, got the technical chops to assess this??
market pegged assets/cryptocurrencies, got the accurate and reliable data to assess this??
stable cryptocurrencies/assets, can't penetrate this
multisignature addresses, got the technical chops to assess this??
file storage, got the technical chops to assess this??
TOR/I2P compatibility,
decentralized application stores/browsers, got the technical chops to assess this??
solid developers, got the technical chops to assess this??
innovative features, got the technical chops to assess this??
fair distribution, can this be anything other than a purely idiosyncratic assessment?
large supportive and productful community, got the accurate and reliable data to assess this??
having a target market or plan for establishing network effect, got the accurate and reliable data to assess this??

Interesting list, looks like two/three items might be feasibly assessed using objective and reliable criteria, the rest remain topics for extended essays. I've add the challenges as obvious questions that people are likely to raise (gotta keep querying the reliability of the data and whether a reliable technical assessment is actually feasible or just a wish).

I don't have time to respond to the entire list right now, but I'd like to at least acknowledge that you have a point. Each of these factors probably deserves its own essay. Perhaps I can add a paragraph or so of elaboration for each, but even still it would never be enough. That is why I tried to hammer home the point that speculating profitably in alternative cryptocurrencies is hard work, which requires many hours of research on many different cryptocurrencies, technologies, concepts, history, and economics.

As I mentioned earlier, it's nothing personal, I'm simpy interested in learning as much as I can from others' models.

No worries, thanks for your response. You gave me more food for thought than anyone else and have made me realize some edits and elaboration that need to be done to the OP.

Cheers  

[gjhiggins]

I decided to publicly respond to a PM regarding the OP, as I feel like it would help clarify some of the points I tried to make in the OP.

That was from me. The PM wasn't private, just personal - to say that the content wasn't personal.

I'll snag some low-hanging fruit from CoinHoarder’s response but the both of us are having to be parsimonious with our time, so the discussion will develop in a fairly leisurely fashion - as is appropriate for a topic that demands some careful thought.

That low-hanging fruit:

you can increase your edge quite a bit by increasing your skills

My Dad studied the racing form, so I don’t think we can use acquired knowledge to differentiate between a wager and an investment. My sense is that the difference is more to do with how precisely the risk can be quantified. A lottery ticket is a gamble. 97.5% return on slots is definitely gambling, an odds-on favourite for the Kentucky Derby is gambling, purchasing a chunk of IBM preferred stock is generally recognised as investment, purchasing a chunk of Bear Stern’s junior debt is ... a poor investment but still an investment.

You're absolutely right to highlight the risk component, I just go a bit further with the baldness of my terminology.

Unfortunately, separating the "scamcoins" from quality investments that have potential is no easy task and there is no exact science.

I get your point but how does it help? It may be litotes rather than hyperbole but the statement remains mere rhetoric.

My intent of this statement is to elaborate as to how much work is required, and that no matter how much work you put in you may still end up being wrong. These were two points I tried to say multiple times in different ways, to make sure that I got those points across, because I feel like it is important to understand those things.

We're only differing by degree here. The two years I've spent collecting altcoin metadata has provided me with a lot of detail and one issue that just won't go away is that it can be impossible to distinguish between ineptitude and malfeasance.

In my opinion there are only a few "network effected" coins... such as Bitcoin, Litecoin, and Dogecoin,
...
I suggest only investing in highly "network effected" cryptocurrencies

That's a feed line if I ever saw one ... What criteri[on|a] do you use to classify Bitcoin, Litecoin and Dogecoin as “network effect” coins? Do *any* other alts cut the mustard here?

I am not sure what a "feed line" is. If you mean this: (http://idioms.thefreedictionary.com/feed+a+line) then I can assure you it is not my intention to convey something that I didn't think is true.

By feed line, I just meant that it raised the obvious question. I've distilled some attributes from your response.

household name recognition

mainstream news has covered

respected inside the cryptocurrency community

common everyday people and Reddit

smart contracts

the most popular

I started with the wikipedia entry: https://en.wikipedia.org/wiki/Network_effect - which basically boils down to “popularity” but (reasonably) doesn’t say much about how it happens. There are supposed to be interdependent benefits forming the effect. All I'm sayin' is - how much do we think we actually know about the network effect as it applies to altcoins?

Dedicated and skilled developers are key to a successful cryptocurrency.

I believe that your supporting argument here can only be conjectural in nature because it isn't actually true as stated and so there isn't any factual support to be found. IMO, a dedicated dev should be viewed as a significant *weakness* in a coin.

It doesn't make any sense to me why having dedicated and skilled developers would be a weakness to a cryptocurrency. ... This argument doesn't make any sense to me and I don't see where you're going with it.

Okay, I'm hiding behind pedantry at the moment (in terms of wilfully over-interpreting “dedicated”) because i) I'm not quite ready to start explaining the logic behind this and ii) it requires a radical shift in thinking, the significance of which I'm only going to be able to communicate if I can persuade y'all to entertain a different narrative, which is what I'm trying to signal here.

Sure, and which “free market” would that be exactly?

I could have been clearer:

“This equilibrating behavior of free markets requires certain assumptions about their agents, collectively known as perfect competition, which therefore cannot be results of the market that they create. Among these assumptions are several which are impossible to fully achieve in a real market, such as complete information, interchangeable goods and services, and lack of market power. The question then is what approximations of these conditions guarantee approximations of market efficiency, and which failures in competition generate overall market failures. Several Nobel Prizes in Economics have been awarded for analyses of market failures due to asymmetric information.”

Succinctly - how well does the altcoin market approximate the conditions of a free market - which, if any of the assumptions are met and to what degree?

(According to my model, the altcoin domain seems to exhibiting a collective failure to fully appreciate the significance of differing perceptions of “value”.)

Each cryptocurrency is judged separately in their own free market every day. With every buy and every sell, the cryptocurrency is being judged.

or being deliberately manipulated <- the cost of incorrect assumptions about perfect information.

++ Everyone thinks they know the answer, but the truth is that everyone is fooling themselves because no one truly knows.

Straw man, you haven't got any support for your assertion “everyone thinks” -- and fwiw, I think I know **an** answer.

Meh, the way people converse on the forums it leads me to believe that at the very least SOME people think that.

Okay, we can now reference a difference between a) those who believe they have an answer and b) those who believe that they don't (or possibly, even that such a thing is a chimera).

If the former are unable to articulate and provide broadly-accepted support for their rationale, all we have is “gut feeling” (or “a shallow model”). Those who recognise the shallowness of the model are doing so from the comparative advantage of a deeper model. If it‘s not a purely random domain, it's generally recognised that the latter will have the edge in accuracy of modelling/prediction. Knowledge = power and all that.

These factors include, but are not limited to (in no certain order):

Interesting list, looks like two/three items might be feasibly assessed using objective and reliable criteria, the rest remain topics for extended essays. I've add the challenges as obvious questions that people are likely to raise (gotta keep querying the reliability of the data and whether a reliable technical assessment is actually feasible or just a wish).

I don't have time to respond to the entire list right now, but I'd like to at least acknowledge that you have a point. Each of these factors probably deserves its own essay. Perhaps I can add a paragraph or so of elaboration for each, but even still it would never be enough.

My point is less palatable - is it actually feasible to assess these factors? IME, the results are so unreliable they're actually damaging if included in a model.

Cheers

Graham

[CoinHoarder]

.....

Good points. I tried to respond to most of the topics you brought up by editing/adding the following:


   2b. Network effect can be estimated by considering an arbitrary mixture of the following: amount of main stream news coverage (if a cryptocurrency is in main stream news often, then it is more likely potential buyers/investors will discover it or be reminded to buy some), amount of cryptocurrency-specific news outlets' coverage, cryptocurrency forums presence (number of threads, members, and activity across all forums), respected in the cryptocurrency community (if it's not respected then it is challenging to obtain a large network effect), and size of 24 hours market volume (low volume indicates low popularity or low usage).

   3g. Consider all dynamics that make a cryptocurrency valuable and/or "speculate-able". A cryptocurrency's value is derived by the public perception of that certain cryptocurrency, since the value is found by the consensus of the free market. I posit that this public perception is a complicated combination of numerous factors. Many people believe that they know the answer, and almost just as many are probably wrong. If you can figure out the answer, or even an answer similar to the correct answer, then you will be a very rich man. Everyone thinks they know the answer, but the truth is that mostly everyone is fooling themselves because most do not. All factors should be considered when weighing whether or not to invest in a cryptocurrency, and each person should figure out how important (or not) each factor is.

   3h. Be extremely weary of IPOs. Many great cryptocurrencies have come from them, but at the same time there have been a lot of scams. If the developers and/or organizers are anonymous, or even pseudonymous, then it is probably not a good idea to invest. Thoroughly research each developer's/organizer's credentials, experience, and reputation. Make sure there is an exact "road map" (or plan) as to how a cryptocurrency will be further developed, and how the funds from the IPO will be used. Also, pay attention to how the initial distribution will be allocated (some allocate certain percentages to development, giveaways, marketing, etc.)

   3i. Be weary of everything really. Price and volume are easily manipulated, as are forums, news outlets, and social media. Be weary of everything and everyone, and do your own thorough research. There is no such thing as doing too much research. Knowledge is power.

   3j. Make sure there is a "road map" (or plan) as to how a cryptocurrency will be further developed in the future. Make sure that road map is feasible, including on a technical level and because of time restraints. Make sure that it is possible to conceive in the first place, and that the technology is better (or comparable) to other cryptocurrencies. Also note time restraints. (IE. Can this project be conceived in a reasonable time frame?) Shareholder governance features such as voting may negate these requirements, but then you still need to vett what shareholders are voting, as they are still susceptible to making incorrect decisions (the majority is not always correct, or informed enough to make a correct decision.)