Weiss Ratings has the latest data on more than 3,000 cryptocurrencies and tokens.
Among them, we issue grades on 111 (plus many more on deck).
But only four currently merit a rating that’s equivalent to a “Buy” (“B-” or better).
We’ll name those four in just a moment. But first let us address some of the most frequently asked questions about our ratings:
How do you rate cryptocurrencies?
We have developed four separate computer models, each designed with a unique purpose:
1. Our technology model focuses on the blockchain technology to evaluate its potential for performance: What kind of speeds could it run at? How would it scale? How advanced is its governance? How does it deal with energy consumption? Can smart contracts be used on the ledger? How flexibly can it be upgraded? What other unique features does it have?
Mobile phone technology provides a good metaphor — like comparing specs on speed (e.g., 4G vs. 5G), screen resolution, battery life, and so on.
2. Our adoption model measures performance in the real world. What are the actual transaction speeds and costs? How decentralized is the network? How big is the developer community? How popular is the project? Are people using it? And much more.
3. Our investment risk model evaluates volatility and downside price risk. Essentially, it seeks to answer the question: “How much money can I lose?” And …
4. Our investment reward model deals with the upside potential — “How much money can I make?”
Combining the results of all four models, we arrive at a final grade, from “A” to “E.”
Any grade of “B-” or better is the equivalent of a “Buy.”
“D+” or lower is “sell.”
And “C” implies no action — “hold” if you already own it; “avoid” if you don’t.
(For more about our cryptocurrency ratings, go here.)
Why don’t you rate all cryptocurrencies?
The overwhelming majority of what many people call “cryptocurrencies” are really nothing of the kind. They’re strictly utility tokens, typically issued by a startup company or project for very limited purposes.
In some respects, utility tokens are similar to Chuck E. Cheese coins or American Airlines AAdvantage points. Beyond exchanging them for goods or services with the merchant who issued them, there’s not much more you can do with them.
And as investments, they suck! They give you no participation in the company’s success. They’re likely to go down in value as the company becomes more efficient, seeks to get its product out to a broader audience and cuts its prices. Worse, they offer none of the rights that you’d expect as a shareholder.
With the cards stacked so heavily against investors, we are not ready to rate them at this time. In most cases, even awarding them low grades might be too generous.
Meanwhile, among the hundreds of distributed ledger projects (true cryptocurrencies) that exist, many have not yet seen the light of day. They’re like wannabe moths and butterflies sitting in a cocoon. Virtually no one owns or uses them. And that means there’s very little adoption data for us to measure.
Result: We will look at them more closely in the future. But right now, we cover strictly DLT protocols that have a minimal level of adoption.
(Related post: “3 Reasons Most ICOs Have Bombed.”)
Why is Bitcoin still just a “C+”?
Poor risk/reward metrics. Outdated technology, including slow transaction speeds, difficulty in scaling, weak governance, and more.
Much of this could improve as the Lightning Network rolls out, but that could take a lot more time.
(For the full story, see “Why Bitcoin Is Still a C+.”)
Why don’t any cryptocurrencies get a Weiss Rating of ‘A’?
There are two reasons it’s difficult for cryptocurrencies to achieve an “A” in the current environment:
First because the entire asset class is still very risky for investors …
And second because it’s currently transitioning from legacy coins like Bitcoin to next-gen coins like EOS.
Here’s the dilemma …
• Yes, our model recognizes that Bitcoin has “excellent” adoption, but its technology is far behind coins like EOS.
• And yes, the model says EOS has “excellent” technology, but it needs more time to catch up with Bitcoin’s adoption.
In our ratings model, to get an “A,” coins like Bitcoins and EOS would need both excellent technology and excellent adoption. Right now, each has one factor licked, but not the other.
What are the coins that currently get a ‘B-‘ or better (“Buy”)?
Answer: XRP, Stellar, EOS and Cardano.
These are among the few that are beginning to put it all together — the advanced tech and adoption in the real world. They’re not all the way there yet. But they’re making good progress.
XRP and Stellar are appealing to businesses and other organizations, mainly for speedy financial transfers. In contrast, EOS and Cardano are designed more as virtual communities, with each participant empowered to influence the future direction of the project, spanning a broad range of applications.
As we’ve explained from the outset, these four have technology that’s built for excellence and fully capable of achieving their specific goals. And, at the same time, they’re enjoying rapidly improving adoption metrics, especially during the past 10 months.
Think about that. They’ve made remarkable progress during a period of massive investor losses, broad reputational damage to the industry, and worse.
So imagine what their market performance could be like once the crypto markets firm up and investor interest returns in a big way!
Martin and Juan
(This post was updated 11/1/2018)