Cryptocoin exchange valuations: mcxNOW & mcxFEE
Posted by Kate Craig-Wood on September 28th, 2013
mcxNOW and mcxFEE
One of the things that got me into cryptocoin mining was cryptocoin trading. I’ve repeatedly demonstrated that I’m pretty bad at it in reality (I’m too easily swayed by the crowd and not disciplined enough), but I do still dabble now and then. Of late I have been using mcxNOW and hanging out in their chatbox (aka. trollbox).
mcxNOW is a pure cryptocoin exchange; you can trade a selection of alt-coins for Bitcoin (BTC) there but cannot trade cryptocoins against fiat (eg. USD). mcxNOW’s founder recently took the interesting step of issuing a pseudo-coin which conferred rights to a profit share (dividends) from trading income, paid every 6 hours. They are called mcxFEE. There has been a lot of debate in the mcxNOW chatbox there about what mcxFEEs should be worth, so I have decided to share my calculations.
There are 100,000 mcxFEEs in existence which represent the entire value of mcxNOW’s revenues (generated from a 0.2% fee on both sides of any currency pair transaction). 25,000 of those are used to pay interest on deposits; that 25% of the fees goes to account holders in proportion to their balance in that coin – another rather cool innovation from RealSolid (the founder and developer). He owns 69,000 shares at present and is remunerated through them. 1,000 are used to pay the lottery and at present 5,000 are in the public domain (ie. the mcxFEE “shares”/coins).
mcxFEEs are currently trading at roughly 0.75 BTC/share. Multiplied up that theoretically gives the exchange a market capitalisation of 75,000 BTC which is about $9.4m. It certainly seems quite high.
Comparative valuations with VirCurEx based on total trade volumes
Happily, we do have something to compare it to. A competing cryptocoin exchange, VirCurEx, is quoted on the virtual securities exchange CryptoStocks under ticket VCX. CryptoStocks is a very illiquid exchange and there have been rumors of the operators (VirCurEx themselves) being scammers. However, let’s assume for the moment that the current highest bid price of 0.0950 BTC/share is a realistic valuation; someone has put up >40 BTC to place the buy order after all, and at the time of writing that was the value of the last trade. This would give VCX a market capitalisation of 2,727 BTC, or roughly $340k.
Next we need to compare the relative sizes of the exchanges. According to CryptoCoinCharts.info, my favorite cryptocoin information site, VirCurEx’s total volume in the last 24 hours was 576 BTC. By contrast, mcxNOW’s total volume was 468 BTC (excluding trades in mcxFEEs themselves). Recently mcxNOW’s volumes have been much higher; over 1,000 BTC, so let’s assume that the exchanges have roughly equal volumes.
In a comparison with VirCurEx mcxFEE should be worth about 0.027 BTC/share; less than 5% of current valuations. However, mcxNOW is innovative and growing fast which counts for something.
Additionally, as mentioned CryptoStocks is a tiny, illiquid and possibly dodgy exchange, and VCX has suspisciously not seen any dividends since April. Let’s wind the clock back and look at VCX in June; then it was trading at around 0.3 BTC/share so a market cap of 8,610 BTC (~$1.1m).
mcxNOW does have other another source of trades too which is not included on CryptoCoinCharts.info; mcxFEE trades themselves. There are fees only on the BTC side of mcxFEE transactions, and based on the visible order book between 28 Sep 16:23:09 and 28 Sep 18:46:35 (~2.5 hours) there were 58.9 BTC-worth of trades. Let’s be generous and assume that is typical for a 24 hour period (although peak time it is a Saturday which are more quiet so not wholly unreasonable), that’s 565 BTC/day.
In other words, mcxFEE trades could currently account for roughly half of mcxNOW’s volumes and based on that its total volumes are about twice that of VirCurEx. However, we can only count half of the mcxFEE transactions so to adjust let’s assume 1.5x VirCurEx’s volumes. By that metric mcxFEEs and generously using the June VCX valuations, mcxFEEs should be worth around 0.13 BTC/share; 17% of current prices.
Another metric we have for mcxNOW is total number of accounts. That has been growing swiftly lately and recently passed 10,000. Other exchanges don’t share this information so we can’t use it for a comparative analysis, but as a sanity check it helps us. By the current valuations it would place a value of $9,000 on each user. This again seems rather high, even when accounting for potential future growth.
For example, I would expect that one could acquire each of those customers through marketing activities for much less than 10% of that value. The remaining $8m would then be vastly more than adequate to replicate the current site’s functionality (indeed I estimate it would be only 1-3 months effort for a dedicated team of three software developers).
Valuations based on P/E ratios
A final approach, since business valuations are all about price/earnings ratios, what is mcxNOW’s total revenue? Let’s be generous and assume 1,000 BTC volume per day of normal currency pairs (I have seen it at this level recently) and another 600 BTC/day of mcxFEEs, of which half attract fees. The total trading revenue would therefore be:
( ( 1,000 x 0.4 ) + ( 600 x 0.2 ) ) / 100 = 5.2 BTC/day
There is another “but” however; Real Solid’s ingenuity is relentless and he recently introduced paid bans. If you don’t like someone in the trollbox you can pay to silence them at a rate of 0.01 BTC per 5 minutes. My last feeshare for having 10 mcxFEE was 0 .000195 BTC. If we base it solely on the above it should have been just 0.00013 BTC. Multiplied up, this difference suggests that paybans are bringing in an additional 2.6 BTC/day.
This brings our estimate of mcxNOW’s total daily revenues to 7.8 BTC/day, or 237 BTC/month (~$30k/month).
At its height last week (things change fast in crypto-land, and it is now closing down), shares in Litecoin Global, and BTC Trading Company, a pair of formerly-leading virtual security exchanges (ticker LTC-GLOBAL), were trading at 400 LTC/share (~$960 @ $2.4/LTC). The monthly dividend paid on 5th September was 2.05 LTC (~$4.90/share). Annualised that gives us a P/E ratio of 16 (in other words, the yield on an investment in LTC-GLOBAL was 1/16 or 6.3%). That is a huge P/E ratio for crypto-space, bested only by CIPHERMINE in recent weeks.
Crypto-securities’ P/E ratios are generally much lower due to the ultra-high risk nature of the investments, as demonstrated by Litecoin Global’s abrupt closure this week. However, let’s run with LTC-GLOBAL’s ratio for now; like that security mcxNOW has demonstrated strong growth recently and RealSolid has a loyal following, not dissimlar to Burnside’s (LTC-GLOBAL’s operator) before recent events. He also has an outstanding track record of innovation, the next being MicroCash (but that’s separate to mcxNOW itself).
mcxNOW’s estimated 7.8 BTC/day revenues annualised is 2,850 BTC (~$356k). Let’s assume costs of $1k/month hosting, $3k/month DDoS protection and $2.5k/month for a full-time administrator; $6.5k total. mcxNOW also advertises on some sites including Clark Moody’s. Let’s assume another $3.5k/month for advertising; $10k total. Annualised that’s $120k, leaving profits of ~$240k (~1,920 BTC). If we apply LTC-GLOBAL’s P/E ratio that brings us to 30,720 BTC (~$3.8m). This would make each mcxFEE worth 0.31 BTC/share; 41% of current prices.
Despite assertions to the contrary in mcxNOW’s trollbox earlier this week, I think my previous calculations were wrong and have now concluded that mcxFEEs are significantly overpriced. I have cashed out at 0.8BTC/share (I’ve used 0.75 BTC/share in the calculations though).
However, I do think mcxNOW has great potential. If RealSolid were to implement fiat pairs (ie. BTC/USD, LTC/USD etc) this could significantly increase the value of the exchange. This would especially be the case since it resides in a thus-far crypto-friendly jurisdiction (Australia). There is a great shortage of fiat-to-crypto exchanges; Mt. Gox is near-impossible to get fiat in and out of and BitStamp is apparently problematic for US bank account holders, though personally I do not understand why.
The product itself, ie. the mcxNOW.com Web site / trading platform, is superior to all others in my opinion. Unlike Cryptsy, whose USP is the huge range of supported coins, mcxNOW has a carefully considered cryptocoin selection which I see as a strength. The closest competitor to mcxNOW is BTC-E; they are quite similar in many ways, except that mcxNOW has several unique advantages:
- Clean, simple design
- Ultra-fast site thanks to C++ implementation
- Interest on deposits
- No limits on withdrawals
The only thing missing is the aforementioned fiat currency handling. With that mcxNOW could easily overtake BTC-E as the alt-coin trading site of choice.
This does not change my assessment that the mcxFEEs are overvalued however. For one thing they are not shares, even in the virtual security sense, so convey no rights and the terms could be changed at any time. Also while RealSolid is doing great works this remains an ultra-high risk investment. Finally, any potential future gain is more than accounted for in the generous P/E multiple. To get the sort of valuations currently seen I would expect the following:
- A real shareholder contract so mcxFEEs convey voting rights.
- A clause in the contract to the effect that in the event of real-world a sale or floatation of the business mcxFEE holders get their proportional share of the proceed or shares.
- Bring MicroCash into the fold (though arguably he is since mcxNOW might be the only MicroCash exchange).
Sadly RealSolid seems quite unwilling to do anything on the first two; he is vehemently against anything which might result in regulation. Personally I think he’s got it wrong anyway. Most jurisdictions are finding that cryptocoins are fiat so he’ll likely come under the cosh anyway.
I might put a few some cash back into mcxFEE if the price settles down a little; it is an exciting and interesting virtual security. RealSolid is certainly a very gifted and innovative individual. However, there is controversy in his history (ref) and, as with most crypto-land investments, there is no guarantee he won’t vanish with the cash. His fan posse would argue that the lack of a limit on withdrawals shows trustworthiness, but that too could be a rouse to engender trust and encourage further deposits (he could do a running instantaneously). Ultimately you need to make up your own minds and remember crypto-security rule #1: Do Not Invest More Than You Can Afford To Lose!