Coin Report #1: GeoCoin

Welcome to a new series of posts entitled Coin Report: these will comprise of a precise, exhaustive and extensive analysis of specific altcoins, published periodically (as I get around to them). Ideally, I’ll be posting one report a week, but this first one has taken several hours to research and will probably take another two or three to write up and edit. So, one every fortnight may be more likely. The first of this series will feature GeoCoin, and the reports will be written according to the following framework:

General Framework:
  • Introduction: In this opening section, I’ll write a short description of the altcoin being analysed, with some general thoughts and important links.
  • Fundamental: This being the most detailed and lengthy section, I’ll break the material up into further sub-sections, such as: General; Metric Analysis; Community; Development; and Other. Here, I’ll be analysing and evaluating the various fundamental aspects of an altcoin according to the process I write about in my book. Further to the book, and, I think, significantly, I’ll be doing a microscopic metric analysis on data that I find useful for speculative purposes; similar to how one would approach value investing in equities, albeit without nearly as much critical data available as in that financial domain.
  • Technical: Here, I’ll provide a top-down analysis of the ALT/BTC and ALT/USD charts. This will be particularly useful in judging entry levels and highlighting potential smart-money accumulation.
  • Conclusion: In this final section, I’ll draw the analysis to a close, summarising the main points-of-interest, and, most importantly, awarding the altcoin a grading based on its overall strength and profit potential going forward. This grading will be on a scale of 1 to 5; 5 being the strongest.

Onto the inaugural Coin Report:


 Introduction

For this first Coin Report, I decided I’d take a look at GeoCoin. GeoCoin came onto my radar about six weeks ago (though I had traded the coin prior to that) because of its chart. The chart instigated a period of further research, particularly into the fundamentals of the coin at the present time (as the project is just shy of four years old), as well as a thorough analysis of its rich-list. Unfortunately, it seems the rich-list has been taken down from the Chainz explorer, and it isn’t available on the Ubiq explorer, so there won’t be any rich-list analysis in this report. Suffice to say, around a month ago, GeoCoin’s rich-list looked very positive, with a large majority of the top 20 addresses in accumulation.

The coin itself presents a number of points-of-interest, particularly because it is the only geocaching cryptocurrency I am aware of; it’s certainly the only succesful one.

If you’d like to find out more about GeoCoin, here are some links that I used in the process of writing this report:


Fundamental

General:

Name: GeoCoin

Ticker: GEO

Sector: Geocaching

Exchanges: Bittrex and Cryptopia

GeoCoin was launched in January 2015, and, as such, has experienced numerous market cycles; thus, price has developed a relatively reliable pattern of behaviour. We’ll delve into the price-history and it’s cyclical nature in the Technical section of this report, but I’d like to emphasise the utility to us, as speculators, of a near-four-year history: unlike the plethora of projects that were launched in 2017 and this current year, GeoCoin has experienced multiple bear markets. As such, we have a reliable roadmap to follow for judging the promise of an entry. This cannot be emphasised enough. The opportunity in all financial assets is dictated by the price you pay. Think about this in terms of a traditional asset, like equities: those that launched in the wake of the 2008 crisis have had 10 consecutive years of bull market fashioning their price-history. When the next recession comes, those equities will be far more difficult to judge a great entry on than those that have experienced a multitude of bear markets, as there is simply no reference point for how they behave in such times. A coin like GeoCoin gives us an advantage, insofar as we are able to map out the behaviour of price in previous bear markets, and use that, along with the following fundamental analysis, to figure out the optimal entry point for future profit.

Not only has GeoCoin experienced numerous price fluctuations, but it has also quite recently experienced a fundamental change. The project launched with a Proof-of-Work consensus mechanism, but transferred to life as an ERC-20 token on the Ubiq platform. This made a lot of sense; there was no need for GeoCoin to maintain its own blockchain, given that its primary aim is to operate as as a token of value rewarded to those via geocaching in its app. The old PoW chain was considered ‘developer abandoned’, and from that point the coin was no longer mineable – another advantage to us, which we’ll get into in the discussion of supply emission and inflation. The current consensus mechanism is a novel one, dubbed Proof-of-Location.


Metric Analysis:

Below, I’ve listed numerous significant and interesting metrics, but, prior to their analysis, there are a few important notes to consider:

Notes:
  • These were calculated on 9th October 2018.
  • To find the 30-day averages, I calculated the sum of the previous 30 days of data according to the sources I provide with the metric, and divided by 30.
  • For some metrics, I have provided both BTC and USD figures, but due to ease-of-access (most screener data is USD-only), some metrics are only USD. Further, the use of USD is helpful as more of these reports are published, as it will allow more readily for cross-comparison.
  • Network Value = Market Cap
  • If you would like to see more data or specific metrics that don’t appear below, please leave your feedback in the Comments section. Equally, any criticisms are welcome. I am aware that, unlike in equity analysis, the use of metrics in altcoins is currently an inexact art. There is much room for improvement and refinement, which I am sure to experience as I publish more reports.
  • Transactional Volume differs from Total Volume as it subtracts (or attempts to) speculative volume. For GeoCoin, this was calculated using the sum of GEO in transactions in a 24-hour period on https://ubiqscan.io/token/0x500684ce0d4f04abedff3e54fcf8acc5e6cfc4bd and multiplying the total by the current price of GEO in USD. Same process for Average Transactional Volume.
  • NVT is a ratio similar to P/E in equities, with transactional volume replacing earnings. For more info, go to http://charts.woobull.com/bitcoin-nvt-ratio/ and https://coinmetrics.io/nvt/#assets=btc
  • NVT is pretty useless for smaller coins with low transaction volume, but where its utility lies is in cross-comparison with other similar coins.
  • For Liqudity, I calculated the sum of BTC in the buy-side of the orderbooks on Bittrex and Cryptopia within 10% of current price.
Metrics:

Price: 8781 satoshis ($0.58)

Volume: $5,188

Circulating Supply: 3,180,551

Total Supply: 3,180,551

Maximum Supply: 4,000,000

% of Max. Supply Minted: 79.51%

Network Value: 279.28 BTC ($1.830mn)

Category: Midcap

Volume-to-Network Value: 0.28%

Average Price (30-Day): $0.56

Average Volume (30-Day): $2,432

Average Volume (30-Day)-to-Network Value: 0.13%

Transactional Volume: $2,805.90

Transaction Count: 4

Transactional Volume-to-Total Volume: 54.08%

Network Value-to-Transaction Volume: 652.23

Average Transactional Volume (30-Day): $594.95

Average NVT (30-Day): 3076.02

Average Transactional Volume-to-Average Volume: 24.46%

Network Value at Max. Supply: $2.301mn

% Price Change USD (30-Day): +10.8%

% Price Change USD (1-Year): -28.8%

USD All-Time High: $18.66

% From USD All-Time High: -96.9%

Premine: 0.85%

Premine Allocation: https://ubiqscan.io/address/0x3990e0f5aa5a413ed9ed6de357a437d06c57c17a

Liquidity: 0.51149 BTC

Liquidity-to-Network Value %: 0.18%

Annual Supply Emission: 50,000 GEO

Annual Supply Emission at Current Price: 4.3905 BTC

Annual Inflation Rate: 1.57%

Network Value in 1 Year at Current Price: $1.830mn

Analysis:

Well, that’s a lot of information to take in… and not all of it is supremely relevant to our purposes. Take, for example, the NVT numbers. These aren’t really all that useful as growing transactional volume is certainly not a fundamental aim of GeoCoin, unlike Bitcoin. It is no surprise that these numbers come out high or that Average Transactional Volume equates to less than 1/4 of Average Volume. If GeoCoin was aiming at becoming a primary medium-of-exchange, it would undoubtedly (given those figures) be failing. But that isn’t the goal. The goal is to provide value for its user-base in the form of tokens that (hopefully) accrue value over time, generating further incentive for those users to explore the locations in which GEO can be found, and ultimately grow the GeoCoin user-base because of that. In short, the goal is to be a playful store-of-value. So, why have I included irrelevant metrics? For the express purposes of cross-comparison. NVT may not be relevant to GeoCoin at its core, but the comparison of NVT figures across similar coins can allow us to assess relative fundamental strength across-the-board (something I will be developing as I write these reports).

But, onto some actual metric analysis:

Given the fundamental aim of GeoCoin that I highlighted above, the metric that is most significant, and that stands out as very promising, is, of course, inflation. Supply emission is integral to our assessment of the profit potential of any coin, and particularly one that is actively seeking to accrue value over time. GeoCoin passes the test with flying colours in this regard. In my book, I write that I do not like to invest in altcoin suffering from greater than 100% annual inflation. GeoCoin has an annual inflation rate of 1.57%. That’s lower than the current inflation rate of the US Dollar.

This supremely low inflation rate is facilitated by the Proof-of-Location consensus mechanism that airdrops 50,000 GEO annually and not a single GEO more. At current prices, that’s less than 5 BTC of extra supply a year. This is very promising with regards to future profit potential at current prices, as we have next-to-zero additional supply to contend with. Demand doesn’t really have to grow in order to sustain current prices. Ultimately, the low inflation rate acts as a cushion for our positions, due to the minimal sell pressure being experienced. Looking forward, this also implies less headwind during a bull cycle.

Another metric that stands out is the % decrease from GeoCoin’s USD all-time-high. Depending on which source you use for the USD all-time high, this is a decrease of between 96-98%. Using the CoinGecko figure of $18.66, current price is ~97% away from those highs… a potential 33x return in waiting. The general consensus is that alts will see new USD highs but not necessarily BTC highs. I am mostly in agreement with this, as I believe ALT/BTC all-time highs will be more hit-and-miss, whereas I think many altcoins will find themselves trading at new USD highs in the next bull cycle.

A third positive can be found in the Average Price figure of $0.56. This just means that GeoCoin has been trading ~$0.56 on average for 30 days; a sign of a potential accumulation range having formed. This is something we can verify later using the chart. But, it suggests that the current price of ~$0.57 is possibly a good entry.

Now, thus far, all seems to be positive, but there is some data I’d like to point out that isn’t particularly promising: namely, the two figures relating to Volume-to-Network Value and Average Volume-to-Network Value. The first is 0.28% and the latter is 0.13%. Generally speaking, I like to see a VNV of 1% or higher, as it suggests smart-money interest. This is highlighted as a critical step in my framework for picking microcap coins. However, GeoCoin isn’t a microcap; it is a midcap. And we are currently in the heart of a bear market. It is unreasonable, I believe, to expect high VNV at such a time… at least not as high as we experience during bull cycles. Regardless, both figures are low, and 0.13% AVNV would usually put me off, or at least compel me to do extensive rich-list analysis to identify accumulation during this period. Unfortunately, as I mentioned earlier, that faculty is no longer available for GeoCoin, so you’ll have to take my word for it that, when I last looked at the top addresses, the signs of accumulation were there.

Further to the above, there is also only ~0.5 BTC of buy-side liquidity within 10% of current price across both exchanges that GeoCoin is listed on. This is, of course, another symptom of the bear market, but liquidity of only 0.18% of network value is not particularly impressive.

That concludes my analysis of the figures. Onto the GeoCoin community.


Community:

There are two primary aspects of community analysis: social media presence and Bitcointalk threads. I’ll begin with the former before moving on to the latter.

Social Media:

Concerning social media presence, there are five main platforms to examine: Twitter, Facebook, Telegram, Discord and Slack.

GeoCoin doesn’t have a Telegram or Slack, but is present on the other three. To start with, I calculated some general metrics across the GeoCoin Twitter and Facebook pages, and they are as follows:

Twitter Followers: 10170

Tweets: 264

Average Twitter Engagement (30-Day): 0.18%

Facebook Likes: 1815

Facebook Posts (90-Day): 27

Average Facebook Engagement (90-Day): 0.08%

Again, these metrics will become more insightful as tools of comparison rather than standalone figures but there is certainly some promise here. According to RivalIQ, media companies (the closest industry in the 2018 report to what I would consider GeoCoin to be) tend to have an average Twitter engagement rate of 0.013%. GeoCoin’s engagement is almost fourteen times above the average. With Facebook however, the average media company generates a 0.08% engagement rate: identical to that of GeoCoin. Twitter is clearly their strength, though that comes as no surprise given that Twitter acts as the social hub for the cryptosphere. Going broader, the average engagement rate on Facebook across all industries is 0.16%: GeoCoin’s is half the overall average. The all-industry average Twitter engagement rate is 0.046%… GeoCoin are still almost four times stronger than this.

Moving away from the two metric-focused social platforms, let’s talk about their Discord channel; a platform more suitable for fostering conversation and sparking ideas on development.

Given that the GeoCoin Discord channel operates within the larger Ubiq group (of ~4589 members), I was expecting something different to what I found. There is a great deal of productive conversation, with ideas on development being bounced back and forth, as well as progress updates pretty much every day. However, all of this conversation is being generated by 6 or 7 members, which is less than I’d have hoped for, especially since there are over 5100 active users of the GeoCoin platform.

Bitcointalk:

Finally, let’s look at the Bitcointalk thread. This, for me, is the hub of all my altcoin research, and has been for years. GeoCoin’s thread smashed it out of the park. There are 240 pages of conversation since January 2015 and 4788 posts. This works out at an average of over 100 posts per month. However, in the past three months, there have been 94 posts, which is a slow-down from the average but still a high level of activity. What I gathered from the thread is consistent development updates by the lead developer, with questions being answered within 24 hours. These 94 posts were written by ~30 different individuals.

The BTCTalk users seem excited by the project, with most expressing their interest in the progress of development and close-to-zero expressions of a less favourable kind. The thread does what it is meant to do: it provides clear, concise and consistent updates on the project. On September 4th, the lead developer announced that the ‘GeoCaching Interface’ is in development, following the launch of which there will be a heavier focus on marketing – a gem of information for the speculator. Overall, impressed. The Bitcointalk thread made up for the small concentration of conversation in the Discord channel.


Development:

Here we come to what is, for many, the crux of any fundamental analysis of a project: development. However, for me, price is always the primary concern, and development is perhaps second in rank. For this section of these reports, I’ll do a brief run-through of general project leadership, followed by an evaluation of the roadmap, whitepaper (there isn’t one for GeoCoin), website and wallet. I’ll conclude with some general thoughts on the project’s past, present and future development.

Project Leadership:

From what I can gather, there is one lead developer that is running the entire project. This is Dave on Twitter. Single-person teams can be risky for the speculator, particularly when there is a smaller community that partake in conversation on development. Keep in mind that GeoCoin has over 5100 active users of the geocaching platform, but less than 50 individuals across BTCTalk and Discord that are actively involved in discussion. This raises a potential question: would community members step in if Dave was to step down? ‘If’ is emphasised for good reason, as, from my research, I do not expect such a sitation to arise, but the question must be asked nonetheless. My honest answer is that I believe there would be community support for development of the project. GeoCoin is safely nestled under the Ubiq wing, and from the conversations I have read through across their social platforms, there is certainly a keen interest in continued development of GeoCoin. Further, the lack of animosity amongst the small community (a rarity in this space) is another positive sign for the doomsday scenarios. The way things tend to play out in such situations is with utter chaos for projects with bickering amongst their own dedicated community and with smooth transition for those, like GeoCoin, with general excitement and positivity. Of course, I maintain that this is simply an if-then scenario, and not one that I expect to arise.

Roadmap:

The roadmap can be found as a section on the website, but it did disappoint me; not for all bad reasons, however. The roadmap is presented as a quirky infographic, which is visually appealling, but it lacks the specificity and clarity that I like to find in a roadmap, as I talk about in my book. I’d have liked to have found projected dates for clearly delineated goals, concise progress summaries and a more extensive roadmap for the future. Part of my disappointment, however, comes from the fact that GeoCoin has already achieved most of the roadmap it has presented. This is a double-edged sword, as it suggests effectiveness on the part of the developer as well as work ethic, but it lacks ambition. Perhaps a revised roadmap will come with the marketing campaign. Scoring it out of 5, I’d give it a 3.

Whitepaper: N/A

Website:

The website has clean UI, if a little basic, but it is easy to navigate and informative. There is clear and active promotion of geocaching (the primary concern of the project), which is good to see. The website lacks depth…  a regularly-updated blog would have been useful, especially for a project like this one.

Wallets:

GEO runs on the Ubiq blockchain, so it can be transacted on any UBQ wallet.

General:

Generally, the main point-of-interest for me regarding GeoCoin’s development is that it has already achieved its primary innovation: successful merging of cryptocurrency with geocaching. The transition to the Ubiq blockchain was a smart move, too. Looking forward, I like that they are considering the introduction of a burn mechanism and that there will be in-app events to foster user-base growth.


Other:

I believe I covered everything in the above sub-sections. That concludes the fundamental section of the report. If you feel I’ve missed something out regarding fundamentals, please do let me know in the Comments section.


Technical

Now, the fun part. Why did GeoCoin come onto my radar in the first place? I talked about it in my last Market Outlook, but let’s take another look at the chart:

GEO/BTC

GEO/USD

In all honesty, all I really needed was that first chart with a horizontal line at 9k satoshis. It is the most important level in GeoCoin’s price-history, and buying below that level has been very profitable numerous times, given a sufficient time-frame. Ranges across GEO/BTC and GEO/USD have formed clearly and tightened of late, indicating an accumulation zone at this oh-so-significant level once again. GEO/USD has returned to July 2017 levels; the levels that preceded a 6000+% move between then and January 2018. Historically-speaking, this is a very good area to accumulate a position, with an aim of an average entry below the 9k satoshis level. Upside potential is huge going forward based on previous prices. Overall, very promising.


Conclusion

This report has run on for well over 3,000 words now, and I think it’s time to draw it to its conclusion. I’ve spent many many hours this week researching and compiling this for you guys (and myself), and, quite frankly, I want to stop typing…

However, I have found this entire process to be very insightful and I look forward to writing more, if only for the possibility of deep cross-comparison. Perhaps, in the future, I’ll also devise a way to make these reports more visually appealling; particularly the Metric Analysis.

My final grading for GeoCoin is a solid 4 out of 5. It is strong in almost all the right areas, but there is certainly a lot of room for fundamental improvement, if not technical.

Please do let me know if you’ve enjoyed this first Coin Report; which sections you found most valuable; where you’d like me to develop further/refine/improve etc. And feel free to leave any questions in the Comments section and I’ll get back to you. Oh, and sign up for the mailing list if you want these delivered direct to your inbox!


If you’ve enjoyed this post and want to receive new posts straight to your inbox, I’ve set up a RSS-to-Email feed that will be sent out weekly; every Monday, 12pm. Just submit your email and I’ll make sure you’re included in the list. Cheers.

The Case For ETH-Season

The following is just a brief digest of something I’ve noticed regarding altcoins and Ethereum:

It seems to me that there is a case to be made for a potential eth-season that may already be underway; something resembling the growth in ALT/BTC markets during Bitcoin’s 2014/15 bear market.

Firstly, let’s take a look at Bitcoin during that period:

BTC/USD 2014/15

As is evident from the chart, Bitcoin dropped around 85% in 413 days, and then was range-bound for 291 days before breaking out, re-testing the resistance level of the range and continuing on its eventual course to new all-time highs.

Now, let’s compare the price-action to ETH at present:

ETH/USD

Ethereum has fallen ~88% in 243 days (around 59% of the time it took Bitcoin to fall to its lows). If we map that forward, we can assume price to be range-bound below ~$275 for around 171 days. Of course, price-action never works out quite that precisely, but it’s worth keeping in mind.

Now, the interesting bit:

Altcoins

The 2014 Bitcoin bear market was a period in which the goal was to accrue more Bitcoin via altcoins. This made sense as Bitcoin was cheap. In the first half of 2017, this modus operandi continued to be successful; Bitcoin was still relatively cheap. Then, the winter of 2017 arrived and many of us that have been involved in the space since 2013/2014 neglected to consider that perhaps this approach was no longer the most effective. After all, Bitcoin was now above $10k and was most certainly no longer cheap. Regardless, many (myself included) stuck to our tried-and-tested methods and devoted the vast majority of our attention to ALT/BTC charts and prices. After all, we wanted more Bitcoin, didn’t we?

This was where many of us went wrong. Bitcoin was expensive. What we should have wanted was dollars. Had we the perspective or the foresight to recognise this, we would have been paying far more attention to ALT/USD charts…

January 2018 came along, and the market was in euphoria. The issue was that ALT/BTC charts had barely budged. Our portfolios had grown exponentially in dollar-terms, but we wanted Bitcoin, right? This disregard was the downfall of many in the following weeks, and I too would have been far better off had I had this perspective from the outset.

Flash-forward to the present day, and we once again find ourselves in an intriguing scenario. Bitcoin has fallen from its highs of ~$20k to roughly $6k. With it, the altcoin market has fallen ~87%. Ethereum has fallen a little more than that. Ethereum is cheap. Should we now be looking towards ALT/ETH charts and prices, where we once were concerned with ALT/BTC and ALT/USD? I  think the following charts illuminate a little on this matter:

ALQO/ETH

AMP/ETH
ARDR/ETH
BLK/ETH
GEO/ETH
GRC/ETH
STRAT/ETH
XMR/ETH

Now, I don’t know about you, but it sure looks to me as though an eth-season is underway. Perhaps the current goal should be to accrue ETH.

What do you think?


If you’ve enjoyed this post and want to receive new posts straight to your inbox, I’ve set up a RSS-to-Email feed that will be sent out weekly; every Monday, 12pm. Just submit your email and I’ll make sure you’re included in the list. Cheers.

The Speculator’s Guide To Masternodes and Masternode Network Value

Given the fervour that began with DASH announcing the release of its initial masternode system and that continues to surround the plethora of projects now offering their own versions of one, what exactly is the incentive for a speculator to run a masternode, and how can one navigate the oversaturated space to find the most promising opportunities? One brief glance at a masternode directory, such as www.masternodes.online, will suffice to show just how daunting a task this can seem to those unfamiliar with the territory; with well over 300 masternode coins listed on that website alone, what should you really be looking for?

Masternode Network Value (MNV), as I like to call it, is the calculation that I consider the key to unlocking the most dependable opportunities in the masternode space. Note that I do not say ‘most profitable’, but rather ‘most dependable’. There is a critical difference between the two, but we will get into that a little later. By the end of this post, you will have a comprehensive take on my approach to masternodes: how I research and analyse them; the distinction between profitability and dependability; why I believe that MNV is the most informative calculation one can make regarding masternode speculation; and how the common pitfalls can be avoided.

But first, we must first define what a masternode is and why they can be a profitable addition to an altcoin portfolio. Forgive me if I butcher the definition, though I write from the perspective of a speculator, and, as such, much of the (irrelevant) technical information has been omitted:

A masternode is simply collateral, in the form of a predetermined amount of a given coin, that fulfils certain tasks on the blockchain and is rewarded for these tasks, often with a fixed portion of the block reward.

Thus, running a masternode is financially incentivised, and one can begin to accrue a steady passive income given an appropriate strategy. Needless to say, it is a space rife with opportunity but also pitfalls, and rarely is it ever as easy as simply selecting a masternode coin, buying the collateral and watching the income pour in. I first began to utilise masternodes in my own altcoin portfolio around twelve months ago, being aware of the potential rewards but anxious about the technology and all that goes with it prior to that. Since then, they have become integral to my strategy, and some of the greatest returns-on-investment that I have gained have stemmed from such projects.

Without further ado, let’s get stuck in.

Tools and Resources:

To begin with, we need to identify the tools and resources available to us to search out – with some luck – promising masternode projects. As far as I am aware, there are five useful masternode directories or ranking websites:

These should suffice for the research process, though I often also scour the Bitcointalk threads – using a simple search for ‘masternode’ – to bolster the list of potentials.

Masternode Network Value:

Now, we must define what I deem to be the most important calculation (for a speculator) concerning masternodes: Masternode Network Value, or MNV. Masternode Network Value is as follows:

(cost of one masternode x number of masternodes online) / circulating market cap

To clarify, let’s take DASH as an example. The MNV of DASH would be:

(39.04BTC x 4656) / 318,233BTC = 0.571 or 57.1%

For comparison, let’s take MANO as an example. The MNV of MANO would be:

(1.8BTC x 186) / 937BTC = 0.357 or 35.7%

And finally, let’s take MEDIC as an example. The MNV of MEDIC would be:

(2.31BTC x 144) / 2202BTC = 0.151 or 15.1%

This is essentially just an equivalent calculation to that of the Coins Locked figure that can be found on some masternode directories, which shows the supply that is currently locked in masternodes as a percentage of the circulating supply, except that I prefer working it out as an MNV figure because I get to know the strength of the underlying masternode network. This leads us on to the next question; what exactly am I looking at with this calculation, and why is it helpful?

MNV is a figure that shows you how much of the market cap of any given masternode coin has actually been bought up and locked into running masternodes. Therein lies its utility; market caps can be useless, artificial figures, but MNV cannot feasibly be faked. It is indicative of true demand and value for a masternode project, as it illuminates the amount of buying that has taken place to accrue those masternodes. The first part of the calculation is itself the masternode network value, as it is a sum of the cost of all masternodes currently online, and we use the circulating market cap to assess how much of a coin’s perceived value is actually in use. It’s all well and good having a billion-dollar market cap for a masternode coin, but if only 10% of that is in operation – running masternodes – it speaks volumes as to the dependability of that masternode network.

With regards to how this calculation becomes useful in our analysis, it differs based on the following section.

Masternode Selection:

The selection process from this point is dependent upon one’s aim; is it to find the most profitable masternodes or the most dependable? As I mentioned prior, there is a critical difference here, and this is where Masternode Network Value comes in. Before elaborating on the most dependable, I’ll first run through the most profitable.

I must preface this by mentioning the more imminent danger to high-profitability: inflation. With a swift glance at the masternode directories I have provided, you will see an abundance of coins seemingly offering upwards of 1000% annual ROI, and at least a handful offering upwards of ten times this. This is a death trap. Do not fall for the false glisten of such rewards; with immense profitability comes immense inflation. The cause of such rewards is as follows, and it is simply a marketing trick:

The Masternode Trick:

Project Z announces its launch and states that its masternodes will be providing 1000% annual ROI by offering the vast majority of their block rewards to masternode holders → This attracts a large number of speculators and miners → The collateral requirement is high and the project has a premine that allows for a handful of masternodes to be set up by the developers to ‘get the masternode network running and stable’ → The developers use part of the premine as a listing fee to index their projects on the popular masternode directories → Meanwhile, the early masternodes are reaping far greater than the specified 1000% annual ROI as there are so few up and running, so block rewards are disproportionately being accrued to those early few → The masternode directories now show the project to currently offer far greater than 1000% annual ROI, which in turn attracts more speculators and miners → This creates artificial demand for the coin, as the collateral amount is often so excessive that it is impractical to simply mine the amount in short enough a time-period to reap the current rewards → The early masternode holders can sell their rewards because of such high demand → More and more masternodes come online and the annual ROI greatly decreases to accommodate this but supply emission does not change as the block rewards remain the same → The price of the coin decreases as demand is no longer sufficient to maintain the supply emission, to the woe of anyone who bought their masternode collateral after the early few.

This may be a simple trick, but it has been used and re-used by so many projects that there is now a graveyard of tens, if not hundreds, of coins that will never recover. The allure of high profitability is too great for the trick to stop working. It is partly the reason for my hack, back in October 2017, as I was scouring the crevices of the cryptosphere for early entry into the most profitable masternodes; thereby unwittingly downloading an unsafe wallet with a hidden RAT that later devoured the majority of my altcoin portfolio. There can only be a few winners (at least at the highest levels of profitability) for such coins, and these are all too often the developers and the very earliest (and luckiest) miners. I myself was lucky enough to be perhaps one of the first five miners on Magnet, securing myself three or four of the first twenty or so masternodes, and, as such, reaping since-unparalleled profitability. But this is a rarity and not one I suggest seeking out. (Saying that, I may find someone with more experience in speculative mining to write a guest post on this, at some point.)

The Process (High-Profitability Masternodes):

For the inconvincibles, there is still a process for picking profitable masternodes that won’t have you weeping after a week:

  • All of the selection criteria highlighted in the book and in my post on Picking Out Microcaps remains valid, and should be the first port-of-call for separating the wheat from the chaff.
  • After that, ignore any masternode offering over 1000% annual ROI. This is too great a level of inflation for it to be worth the additional stress.
  • It is at this point that MNV comes into play. For higher profitability masternodes, you want a higher-than-usual MNV. This is because higher profitability means greater supply emission, thus likely devaluing the coin and thereby our masternodes. High MNV assures that a high percentage of the coin supply is locked up in masternodes. (Note: this figure is dynamic rather than static. We must monitor it closely to assure there is a constant demand for masternodes on this network.)
  • For masternodes with greater than 100% and less than 1000% annual ROI (the range I consider ‘high profitability’), I would suggest filtering for at least a 0.66 or higher MNV (66%). Two-thirds or more of the market cap in operation to run masternodes is rare but I believe it is a necessary filter to prevent falling into the liquidity trap, wherein demand for masternodes is too low to accommodate the immense supply emission.
  • From here, the usual technical analysis comes into play, where I make sure that the chart aligns well with MNV. What I mean by this is simply that the ideal scenario is one in which low price complements high MNV. This ensures that:
    • High profitability masternodes are still in heavy demand despite price being low.
    • One hedges against the likelihood of the value of the masternode itself decreasing by much; it is already cheap, relative to its price-history.
  • Then, once you’ve filtered for all of the above, the accumulation process can begin. You are free to set up your high profitability masternode. One word of final warning would be to consider making high profitability masternodes a shorter-term component of your strategy. The longer you run them, the longer you run the risk of supply emission beating out demand and your masternodes (and their rewards) becoming relatively worthless.
The Process (Long-Term Masternodes):

Now, you might be more like me. You might prefer dependable, longer-term masternodes to add to your portfolio. In this case, the bar is considerably lower for MNV and the range narrower for profitability. (This is where the sole distinction lies in the selection process, as the rest of the above outline works across-the-board.) Dependable masternodes are so because of their low inflation, historically sustained demand and stable networks. This kind of masternode is most suitable for passive income purposes.

How do we find them? Well, aside from the filtering process above:

  • Look for coins with an annual ROI between 10-100%. This is a stable range of inflation and still very profitable for a passive income model.
  • Filter for a MNV of 0.25 (25%) or greater. The reason the required MNV is lower for these is due to far less supply emission. Of course, the higher the MNV, the better, regardless of the profitability of the coin. We want more masternodes online.
  • Whilst you are scouring the masternode directories, keep in mind that a few of them – masternodes.online and masternodes.pro come to mind – display graphs that depict the history of masternode cost, masternode count and other useful data. The masternode count data is especially useful, as it allows us to visualise how the network has grown over time. Ideally, we want to see steady, linear growth in the number of masternodes online. This ties in to the idea of historically sustained demand; long-term demand indicates that a potential passive income model may be sustainable.

Common Mistakes and Pitfalls:

In conclusion of this post, I’d like to run through some common mistakes that inexperienced (or experienced) speculators may make:

  1. Buying high: The most common pitfall is buying a masternode when it is extremely costly to do so. This is often due to the allure of high rewards but not exclusively so. Technical analysis remains paramount; by neglecting to cross-compare other analysis with the price-chart, one can fall into the all-too-common trap of buying an overvalued masternode. The closer to the lows you buy your masternode, the more effectively you hedge against potential devaluation, which protects your initial investment.
  2. Ignoring inflation: It might seem lucrative to disregard basic economics in the pursuit of high rewards, but five-digit percentage annual ROI is almost always likely to end up a loser, despite any early gains. The masternodes are usually incredibly expensive and devalue exponentially due to the immense, incessant increase in supply.
  3. Downloading unsafe wallets: This one hits home, as it is a mistake of mine; made in the pursuit of high profitability, to my despair. There will be times when new or less-established coins will come into your cross-hairs. Those unfamiliar with security procedures will unwittingly download potentially dangerous wallets. Refrain from this as much as you can. If you must download a wallet for a lesser-known project, scan the file for viruses prior to downloading and post-download. Further, run them in sandboxes or on Virtual Machines where possible. For further security advice, consult @notsofast’s article here.

I hope this post has been somewhat insightful, and I am happy to answer any questions in the Comments section. Further, what has worked for you in your own masternode strategies? I’d love to hear any thoughts and ideas.


If you’ve enjoyed this post and want to receive new posts straight to your inbox, I’ve set up a RSS-to-Email feed that will be sent out weekly; every Monday, 12pm. Just submit your email and I’ll make sure you’re included in the list. Cheers.


Disclaimer: This post references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.