Weiss Crypto Ratings Model: Why We’ve Made Some Changes

Significant portions of this post were published in Weiss Cryptocurrency Ratings
this past Monday, Dec. 2, 2019.


By: Juan M. Villaverde

We made some changes in our Weiss Ratings Model this week.

They’re not major. Nor do they produce the kind of upgrades or downgrades that imply any modification to your investment strategy and tactics.

But for the sake of transparency, we want you to be aware of them.

To better understand where we are today, we’ll need to go back to the early 1900s and try relive this scenario ...

A new kind of machine — the automobile — bursts onto the scene and spreads like wildfire.

In the U.S. alone, hundreds of independent manufacturers jump into the fray. Each touts “unique features.” Each seeks to make its “innovative technology” the core distinguishing characteristic that gives it an edge over competitors.

After the initial wave of new launches, however, the game changes.

The factor that increasingly drives success is popularity and sales, supported by mass manufacturing. Technological innovations are still very important, but less so comparatively.

Sure enough, by 1929, the Ford Model T has surpassed all others in sales. The number of still-active manufacturers plunges from 253 to only 44.

Back to the Present

Today, as we prepare to welcome the third decade of the 21st century, we see a similar pattern in blockchain, or, more broadly, Distributed Ledger Technology (DLT). Specifically, we see three important trends ...

Trend 1. Copycat Cryptocurrencies

Back in 2017 and into early 2018, Initial Coin Offerings (ICOs) for new DLTs raised tens — even hundreds — of millions of dollars. And in some instances, it was their new technological advances that distinguished them from the competition.

Since then, however, the crypto world has shifted. Although important innovation continues, the power of technology alone to make a critical difference has diminished.

Why? Because more so than ever, new distributed ledger projects are built from the ground up with technology that’s borrowed from the best of the best already on the market.

We’ve always recognized that crypto developers can copy-and-paste old code, make minor tweaks and then tout those tweaks as “revolutionary.” Thus, we’ve always penalized copycat technology.

Now, we have adjusted our Technology Model to penalize them more.

We have also adjusted the model to better differentiate between ...

A) Old-generation cryptocurrencies that are slow to adapt to the challenges of the new decade, and ...

B) New-generation cryptos that are more likely to rise to those challenges.

Trend 2. Adoption is Making a Bigger Difference Than Before

As we stated when we first launched the Weiss Crypto Ratings in January 2018, even the best technology in the world — whether original or copycat — cannot survive unless it’s adopted by individuals and institutions.

But to achieve that adoption, cryptocurrencies need strong branding and marketing.

Sure, they still need strong technology, too. But, among many coins that share similar high tech, actual usage and real-world performance ultimately trumps technology.

In addition, cryptos with high adoption like Bitcoin (BTC) or Ethereum (ETH) often become more popular simply because they already were popular.

The greater the mass, the stronger the gravitational force: Users gravitate to them much like they amass around Facebook, Google or Amazon. That’s where their friends and family are. “That’s where everyone goes,” they say. So that’s where they go, too.

This self-reinforcing mechanism, called the “network effect,” boosts the value of a blockchain (or DLT) network with the growing number of users.

Bottom line: In the 2020s, adoption is likely to be a bigger factor than it has been in recent years, and we are adjusting our Weiss Crypto Ratings model accordingly.

Trend 3. Market Volatility Can Be Deceptive

The Weiss Crypto Ratings are designed for both for long- and short-term investors.

We recommend long-term investors (with a time horizon beyond a few months) focus primarily on our Tech/Adoption Grade; while short-term investors and traders focus primarily on our Risk/Reward Grade.

Then, our Overall Weiss Crypto Ratings represents the combination of both sides — Tech/Adoption and Risk/Reward.

All of this remains the same today, except for one thing: We see too many instances of sudden surges and crashes in individual coins. This, in turn, is causing a greater frequency of changes in our Risk/Reward metrics than we feel are warranted by sustainable, meaningful trends.

The needed adjustment here is simple: A smaller — but still significant — role for the Risk/Reward Grade in the overall Weiss Crypto Rating.

Plus, to better distinguish this aspect of our model from Risk/Reward metrics used in our separate Weiss Stock Ratings, we are making two changes in our naming conventions: We have changed the grade for “Risk/Reward” to “Market Performance.” And we’ve changed “Reward” to “Momentum.”

With these changes, the Weiss Crypto team and I are ready to see what comes in 2020 and beyond.

I hope you are, too.



About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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