I am interested in Bitcoin Cash because of the bargain it offers. Learning how to invest properly and timing our investments makes the difference between making maximum profit, and profiting just very small, or even losing money from our investments.
The crypto market is not stonks. We know this already as we know that eventually there is a top and after that there is a drop of interest and a return to previous price support, although, always a little higher.
The title has two subjects I am going to explore in this article.
Value Investing Strategy
The Network Laws
Because the topic is about applying a long term strategy in our cryptocurrency investments, having knowledge of both and applying them, will be of benefit to us.
Value Investing
Value investing in crypto is equally important as with stocks, and the results come faster, especially during bullish market cycles. Applying it together with "Dollar Cost Average" gives great results.
What exactly is value investing:
This is a strategy used more often in the stock market. Investors are analyzing individual stocks trying to find those that are undervalued.
Asset analysts with this strategy are researching the fundamentals and technicals of the price of each stock/crypto or any asset.
Of course, the top investment funds and quantitative analysts have modern tools at their disposal that can help them solve complex situations.
Finding the intrinsic value is a top priority for analysts, and to do so they perform technical and fundamental analysis.
There are many factors and indicators that are applied, that have to do with company data like business plan, marketing exposure, market penetration levels, consumer profile targets and more that help us calculate the intrinsic value of an asset.
Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value.
Value investors actively ferret out stocks they think the stock market is underestimating.
Value investors use financial analysis, don't follow the herd, and are long-term investors of quality companies.
Investopedia: https://www.investopedia.com/terms/v/valueinvesting.asp#
The market usually overreacts especially when it comes to news. And especially in the crypto market, where the intrinsic value of most crypto assets is very close to zero. The wild fluctuations that we see in the Cryptocurrency market mostly have to do with this fact.
The most important part of value investing is that we don't follow the herd. It is a predicting tool that gives us a better perspective of an asset and its long term potential.
Value investing is a long term strategy, and if applied correctly in the crypto market it gives profits unprecedented profits. Investing early, when the herd is still far from a promising asset, awards the best risk/reward dynamics.
The crypto market was undervalued for a long time between 2018-2020. The altcoin market was very undervalued since Bitcoin dominance was reaching 70% and stable coins were also having a 5% share.
Same for Bitcoin Cash. The real interest started when BCH was just 1/100th of the price of BTC. This was an extremely undervalued condition. Bitcoin Cash is still vastly undervalued in this crypto market.
One may wonder why @MarcDeMesel , @RogerVer, KimDotCom and other major Bitcoin Cash investors and influencers have this strong belief in Bitcoin Cash?
Why they don't just trade and take profit as the usual investor would do after Bitcoin Cash reached $1,500?
What is described here is similar to the long term investing strategy they follow. Most of the top crypto investors take this risk, they have performed complete market analysis and understand the potential of the Bitcoin Cash network. Bitcoin Cash is not a simple trade to make, it is basically a new paradigm and should be treated as investing in Amazon or Apple in their beginnings.
Bitcoin Cash has now taken control of the Bitcoin revolution in P2P electronic transactions. It is the equivalent of cash in digital form.
The Network Laws
Cryptocurrencies are networks using mostly the blockchain technology to transfer value. Some have created different mechanics for their networks like IOTA (Tangle) or Hedera (Hashcash). Nano also has an interesting network mechanic and governance.
With time since the first communication networks appeared, analysts applied several patterns to understand and calculate the value of a network.
Sarnoff's Law
Sarnoff's Law was one of the earliest is straight. It means that the more the users of a network the more the value.
This law states that the value of the network grows in proportion to the number of nodes on the network.
Abstract from: Reed’s Law and How Multiple Identities Make the Long Tail Just That Little Bit Longer (https://link.springer.com/book/10.1007/978-3-642-16581-8)
Sarnoff gives the value of the network equal to the number of users. However this is accurately applying only in radio and television networks, where the user of the network can not interact with other users. This law was created for this particular network structure.
Metcalfe's Law
Metcalfe's law gives a very interesting point that we also need to consider as we are examining networks when researching cryptocurrencies. The value of the network is proportional to the number of users squared. This because in modern networks each user has the ability to communicate not only with the central node, but also with each other user.
Metcalfe's Law is used to understand the importance of the value of cryptocurrency networks as well. Bitcoin Cash for example, has seen a surge of network activity in 2021.
Reed's Law
David Reed (MIT professor 2003-2010).
Reed in 1999 introduced clusters in the Metcalfe's Law.
He suggested that "group-forming networks" that allow for the formation of clusters scale value even faster than other networks.
(https://guides.co/g/the-network-effects-bible/121725)
Sub-groups (clusters) scale at much faster rate adding more users to the network. This explains the rapid expansion of social networks where we observe exponential rise.
(https://en.wikipedia.org/wiki/Social_network_analysis)
The definition of the cluster is "a group of nodes more connected to each other, than to other nodes". The videoclip posted here gives the information required to understand clusters in networking, especially in social networks.
Conclusion
In this crypto market Bitcoin Cash is still undervalued, however, it is still subject to Bitcoin price swings because all cryptocurrencies are correlated due to the many trades settled in BTC instead of USD and the dominance of BTC that only recently has dropped significantly.
If the bull market ends now, the Bitcoin Cash price will not have reached its maximum potential. The Bitcoin Cash network has proven a lot though and since this is a long term gain, there is so much potential that could make BCH decouple from the BTC price cycles and begin acting indepedently.
In fact I believe that while a short term drop of Bitcoin price to even lower levels, will only have a temporary effect to Bitcoin Cash price.
Value investing in blockchain networks that have not stalled development will give exponential profits in the future. Bitcoin Cash is one example and there are more cryptocurrencies having similar potential.
Resources used:
https://guides.co/g/the-network-effects-bible/121725 (Images and information)
https://link.springer.com/chapter/10.1007%2F978-3-642-16581-8_13 (Quote)
https://www.investopedia.com/terms/v/valueinvesting.asp# (Quote and validation)
https://en.wikipedia.org/wiki/David_P._Reed (Image and information)
https://en.wikipedia.org/wiki/Social_network_analysis (image and information)
