Today, I will be giving my recommendations on the new "crypto" from Australia called QOIN
I loosely use the term "crypto" because this is a private blockchain with no transparency at all. But that's besides the point. My article is simply to explore whether this is a good asset to BUY, SELL or HOLD.
TLDR - SELL 60%, HOLD 40%. Read on for why
Now, when trying to understand what to do with any asset, there are a few things you need to look at - Current Valuation, Future valuation and Associated Risks. Let's keep it simple using only these variables and look at each of them in detail.
Current Valuation:
QOIN has an interesting way of valuing the asset.
1. It is on a private exchange with multiple price points - a trade price (around A$5 at the time of writing), a SELL price (around $4 at time of writing) and a BUY price (around $4.8 at the time of writing)
The way QOIN values trade price and and subsequently the asset value is via an algorithm based on the number of "validated merchants". Now, I use the term "validated merchants" loosely because all that is required to become a validated merchant is an ABN number (which you can register online in 5 minutes). There is some sort of validation by QOIN HQ to make sure you are a real merchant, but there are ways around this (which we won't get into).
A the time of writing, you can see the valuation via the screenshot below (backup https://web.archive.org/web/20210111075111/https://qoin.world/):
Future Valuation:
Now, let's take a look at future valuation and how this plays into what the value of the asset is. Now, whenever anybody recommends a BUY, SELL or HOLD, they decide this based on whether the stock is undervalued or overvalued or fairly priced. Now, in the case of QOIN, we may easily be tempted to consider the asset as undervalued. Because the value has risen from $4.01 to $5.07 in the past 1 month and from $0.15 to $5.07 in a year. And as per the QOIN whitepaper, (backup - http://web.archive.org/web/20201028105306/https://qoin.world/wp-content/uploads/2020/09/Qoin-Whitepaper_MKTWP092020.01_.pdf) the aim is to have 10,000,000 merchants (10 Million) in whatever number of years. The total number of QOINS that will be minted at this point is 10,000,000,000 (yes, that's 10 Billion) at a valuation of $1,000,000,000,000 (yes, 1 trillion!!!). Which basically means that if QOIN continues what they're doing and add 10 Million merchants, each QOIN would be worth $100 each.
That's a nice round figure. So, you may say why don't I just invest into this now at $5 and make a 20x return on investment few years down the line. All valid thinking, but read on to understand my recommendation and the reasons behind it.
Associated risks:
Now, in investing in any asset, you should always look at the risk vs. reward ratio. Yes, there is a good possibility of reward, but what about the risks? Here is where QOIN in my opinion has several issues:
1. Can Only cash out in QOIN's exchange:
At the time of writing QOIN already is discounted at a major 22.5% to the trade price as below:
But why is this? Couple of reasons -
a) This is QOIN's internal exchange called BTX - which is nothing but a buyback scheme from QOIN. There are very few buyers who buy QOIN at the market price of $4.88 - reason being new merchants are given free QOINs as incentive to join as well as the fact that there is over 300+ million QOINS in circulation being traded. Off these 300+million, I conservatively estimate 25 million+ QOINS already in circulation. This leads me to speculate that the spread will keep increasing in an effort to minimize the buyback cost to QOIN as a company.
b) Conservative estimates from inside sources estimate number of QOINs being sold (from merchant to QOIN) everyday to equal $500,000 while QOINs being bought from QOIN by merchants is again estimated aggressively at $200,000. This leads to a defecit of almost $300,000 every day. Now BTX has taken steps to reduce the bleed, i.e. they have limits of $1,000 per merchant and a maximum of $20,000 per month. But these are easily overcome by merchants using multiple accounts (family members, friends etc.) to bypass these limits.
So, the question arises - Can QOIN be listed on a public exchange? The answer is Possibly Not. Factors include the private blockchain that can be exposed if necessary, but the amount of free QOINS in circulation + QOIN's strategy to have an algorithm based price + controlling the SELL price all have led to a difficult situation where this will likely never happen
2. Market Forces and Other Risks:
While QOIN would like to think this plan is fool-proof, they conveniently ignore (at-least to the outside world) that there are market forces that could mess with their plans. Alternatives to QOIN with similar approaches could arise (e.g. BBX is only one of many companies in similar space. QOIN expansion to 10M merchants includes international expansion which brings with it other competitors). Add to that the fact that QOIN may not have enough runway to continue buybacks (we don't know their warchest, but their line of credit certainly cannot exceed $20M and their income is no way able to keep up with the buybacks).
So what may end up happening is that QOIN as a company goes into administration and you may be left holding a bag of QOIN which is literally valueless. Because remember, there is no other exchange to sell this to. Notice the QOIN fine print below:
You are literally buying into a currency with no value promised. If QOIN goes into administration, your QOINs will not even be considered as a liability to be cleared by administrators.
So what is my recommendation. Simple - SELL 40 to 60% of your QOINs ASAP. HOLD onto 20% as a speculative investment and trade the rest within the community if you find a use for it. I recommend trading 20% reluctantly as you're just perpetuating a worthless asset and letting someone else take the hit. If you want to be ethical, SELL 60% and HOLD 40%
Comments are welcome!
