Lately, there’s been a lot of talk about the cryptocurrencies in circulation and value of the market. Digital currencies with values below $1 have seen an increase which has provoked controversy among newer investors on the value of the currencies. The investors in these “Penny coins” claim that one day, their coins will be worth more than a Bitcoin.
These optimists, however, often don’t consider the notion of digital scarcity, which means that the more units there are in circulation, the cheaper the currency will be, and, vice versa. With an aim to solve this sort of problem, the website Bitcoin Price Equivalence was created.
Not So Cheap Cryptocurrencies
Following a rise in the price of penny stocks, a heated debate has now arisen over predictions about these smaller virtual currencies. A recent post on Twitter echoed ideas of removing bias and then asking investors about their purchases; if all cryptocurrencies were at the same level as Bitcoin, would anyone still buy it? Eric Wall, a Bitcoin columnist clears up the issue in his weekly article.
“Obviously, deciding on an investment choice, while only using its unit price for a reason, is completely senseless. All cryptocurrencies, even Bitcoin, would have sub-cent values if Satoshi had chosen 21 quadrillion, instead of 21 million, as the total number of units that can be issued.
The new website, Bitcoin Price Equivalence, was built to help determine the actual value of a digital currency by removing bias. This normalizes the price of each cryptocurrency.
Putting Cryptocurrencies on the Same Level
Bitcoin Price Equivalence allows you to determine the value of a specific currency if it had the same number of units in circulation as Bitcoin. Stellar (XLM) and Ripple (XRP) are two of the best examples to illustrate this situation. Currently around $0.55 and $2.01 respectively, after removing the bias, one unit of XLM is equivalent $3,268 and XRP, about $11,420
With such a significant difference in price, if all cryptocurrencies had the same number of units in circulation, would anyone still invest in the markets? A sane person would never invest $11,420 for a single unit of XRP, however, at a price like $2.01, investors might be willing to dish out a few dollars.
By enforcing the Bitcoin Price Equivalence, transactions would become problematic for some cryptocurrencies. Dentacoin, for example, a digital currency widely used in the dental field, would end up with a value of about $633. So, to pay for a checkup or cleaning, a patient would only have to pay with a small fraction of their Dentacoin.
The BPE is rather practical as it highlights the overvaluation of some digital currencies, while also showing that others still have room to grow. Although the exchange is currently facing problems, it is much more realistic to use the BPE for a currency such as Ethereum, than say for the Ripple.
With all this in mind, cryptocurrencies that, at first, might seem affordable, might not be as cheap as the look.