Determining a coin’s pricing strategy before listing is an important decision. It directly affects the project’s potential success. In this article, Crypto Trading will help you learn about the definition, pricing factors, and traditional pricing strategies!
What is a cryptocurrency pricing strategy?
In fact, coin valuation has its own characteristics compared to stock valuation. With stocks, investors rely on revenue, profits, loans, accumulated losses, etc. They use indicators such as P/E or P/B to evaluate. But coins do not have these indicators. Coin valuation is based on technology, applications, community, trading volume, and development potential.
From an investor’s perspective, coin valuation is more qualitative. There are no financial statements or cash flows to assess value. Instead, pricing strategies are based on the market capitalization of coins in the same segment. Coin value will be determined by the expected market capitalization divided by the number of coins in supply.
For example, project A issues 100 million coins. This project competes directly with Ethereum (ETH), which has a market capitalization of $400 billion. To reach a market capitalization of $400 billion, each coin of project A needs to be worth $4,000.
Of course, this price is just an assumption. It is just the project’s offering price to investors. It does not accurately reflect the level of interest or real value. In fact, to reach that price, the project needs a clear roadmap. The next section will explore the factors in the pricing strategy that help determine the real value of the coin.
See also: Technical analysis: secret trade to increase profits
Cryptocurrency Pricing Factors in Crypto Trading
In the stock market, valuation is based on subjective and objective factors. Subjective factors include revenue and profit. Objective factors include industry growth rate and competitors. In the cryptocurrency market, we also apply this pricing strategy. However, due to their own characteristics, these factors are different.
Objective factors in pricing strategy
The first is the money flow factor. In the cryptocurrency market, there have been two growth seasons with a 4-year cycle. Each growth season consists of three stages: initiation, boom, and decline. Corresponding to each growth season, we see a shift in money flow.
Cash flow goes through five different stages as described. Among them:
- Fiat phase, when new money starts to flow into the market. Here, investors often look for new investment opportunities, as returns from traditional financial markets are limited.
- Bitcoin phase, when investment money flows into Bitcoin. The coin has the largest market cap and is often the starting point for new investors.
- Large caps phase, when investors’ attention shifts to other large-cap altcoins. Investors are often interested in projects with great potential and stability.
- Small caps phase, when money flows into small cap altcoins. This is the final phase. Although high risk, these coins often have high profit potential.
The second factor is the common ground factor within the same segment. Suppose coin A is in the mid-cap segment. Some projects in this segment started at $1. If project A’s price is lower than the average value, it could be a valuation opportunity. Conversely, a higher price could be due to overvaluation by the project owner.
Technical analysis of subjective factors
- The first subjective factor is the development team and investors. The team is the backbone of a project. If the team is competent enough, the project will easily succeed.
Take Solana for example. Right from its ICO, Solana attracted the attention of large funds such as Alameda Research, Multicoin Capital, and Foundation Capital. Statistics show that Solana has raised $335 million. The reality has proven that Solana is a successful project. An initial investment of $1,000 has increased 320 times.
- The second subjective factor is the community and the exchange. A large community can boost the price of a coin. Community trust also keeps the price stable against fluctuations. Solana is a good example.
Solana is currently the coin with the highest staking rate on the market. The price of SOL recently reached a record high, surpassing $210. Despite the price increase, the staking rate remains stable, showing the confidence of investors in this project. For them, the current price still seems quite cheap.
In addition, the exchange on which a coin is listed also affects the price. Projects on Binance Launchpad often attract the attention of many investors. They believe that the initial offering price is often very attractive. With support from Binance, the price often spikes even in the support resistance zone. The official listing on Binance after Launchpad creates an attractive pricing strategy. Making IEOs often sell out.
See more: HTX exchange – Instructions for open an HTX account
Coin pricing strategy in finance
In finance, there are three traditional valuation methods commonly used to determine the value of an investment or business. Each method has its own way of working, advantages, and disadvantages.
How to Make Money from Crypto Through Discounted Cash Flow Strategy
This pricing strategy is popular in both traditional and Crypto financial markets. To apply it, you need:
- Revenue
- Forecast future revenue
- Current discount
Not all Crypto projects have revenue, so it is mainly applied to DEXs (Decentralized Exchanges) with stable cash flow over time. DEX cash flow is easy to measure through trading volume statistics from many data sources such as CoinMarketCap, …
Comment:
Before the advent of DeFi, no project was generating consistent revenue. DeFi brings real cash flow, attracting traditional investors.
With the emergence of cash flow, coin prices are valued, attracting more investors. Investing in Crypto and DeFi has attracted great interest from traditional investors. Especially in 2020, with Bitcoin and ETH leading the investment cash flow.
The downside of this method is that it is difficult to predict future cash flows. A mistake can lead to a mistake in coin valuation. This method is suitable for stable DEX projects such as Pancake, Uniswap, Sushiswap,…
Crypto Trading Coin Valuation by P/E Multiple
In the Crypto field, this method is widely applied, requiring:
- Select a criterion such as Profit, TVL, or Revenue.
- Find the right metrics for your industry criteria.
- Apply to specific projects.
For example, Remitano uses the Market Cap/Volume criterion, which is often used in AMM projects. This index shows the ratio between capitalization and trading volume, and the lower the better.
Compare Market Cap – TVL of the top 7 AMM projects today:
- The data shows that the industry Market Cap/Volume is (7.7 + 4.8 + 0.8 + 5.2 + 8.5 + 4.4 + 2.7) / 7 = 4.87.
- Applied to Sushi: Market Cap = Volume * (MC/Industry Volume) = $430 million * 4.87 = $2.097 billion.
- With the current resource of 192,789,225. That means 1 SUSHI = $10.86. Therefore, Sushi has a suitable valuation for the project.
This method is often very popular because:
- Does not require high financial knowledge, easy to apply.
- More real data, more accuracy.
- Fast results, in line with the volatility of the Crypto market.
To effectively apply multiple pricing strategies, it is necessary to collect accurate data on leading competitors in the industry. For each competitor, the more detailed the information, the better. This step will help make the coin pricing process more accurate and feasible. Refer to trailing stops that follow market trends to get the most optimal price.
Conclude
In the above article, we discussed pricing strategy in the field of cryptocurrency and traditional finance. Valuing cryptocurrencies and stocks both require a deep understanding of the market and related factors. Hopefully, through the article, you will have a better understanding of pricing strategy and make effective investment decisions. Follow Crypto Trading now to update more knowledge and useful information about the Crypto market and improve your investment ability!
Frequently Asked Questions
Why is pricing strategy so important?
Pricing strategy is important because it directly affects a business’s revenue, profits, and competitiveness.
How to determine product price when there is no production cost data?
In the absence of production cost data, understanding the market and competitive factors can help determine product pricing.
How to implement an effective pricing strategy?
To implement an effective pricing strategy, a good understanding of market demand, product value, and competitive strategy is required.
