Please read the full article to understand everything otherwise you will make a mistake even if you are an experienced player.
The Shiller P/E is an indicator created by Robert Shiller, author of Irrational Exuberance. To determine how over-or underpriced the market is, Shiller calculates the cyclically and inflation-adjusted earnings of the S&P 500 over the past ten years and divides that number into the total market price of the S&P 500 — a cyclically adjusted price-to-earnings (P/E) ratio.
The average Shiller P/E over 140 years is 16.4. Since 1870, the Shiller P/E has risen above 25 only three times. In 1929 it rose to 32, and then the market crashed down 90 percent. In 2000, it rose to 44, and then the market crashed down 50 percent. The third time is now. The Shiller P/E went above 28 in 2016, and in October 2017, it had risen to 31. These days it stays around 28 to 30(little worrying if you are into the stock market).
Why did I mention it? remember whenever this ratio is above 20 is generally it turned out to be a bubble. Now let’s talk about ontology.
If you want to create a similar P/E ratio for ontology than it should be the market cap divided by the yearly demand of ontology coin. So we will call it the P/D(demand) ratio in the cryptocurrency market.
Now, what is the market cap of ontology at the time of writing?
Total supply * price = 1 billion * 1.31usd= 1.31 billion usd
Wait… there is more… I forgot to add the market cap of ONG.
Total supply * price = 1 billion * 0.44 usd = 440 million usd
So the total market cap of ontology is 1.31 + 0.44 billion =1.75 billion USD.
So 1.75 billion is the “P”.
Now let's find the “D”.
If you go to the website of ontology than you will find that on an average 22k ONG is daily volume. So monthly volume becomes 660k ONG. and yearly volume becomes around 8million ONG. Now we will multiply this with the current price of 0.44usd /ONG.
So, the “D” becomes around 8million ONG*0.44 USD = 3.52 million USD.Now, this volume is generated by mainly two projects.
Hypersnakes
Ontoland
I want you to go to the website of both the projects(links are attached )and ask these questions to your self that, are these projects looking like they are even gonna survive with such a low-level user interface? Do we know how many people keep coming back to these sites ? will you go there even for a second? Don’t you think that we should wait for the play store or app store reviews of both these projects to make sure that they are legit? But let’s be generous and believe that everything is perfect and more than good.
So now let’s calculate the P/D ratio with Shiller's P/E ratio of stocks.
Now the P / D ratio is
75 billion / 3.52 million = around “500”.
Whenever the P to E ratio is above 20 it generally is a bubble. Here it is 500 in which we included projects with the worst possible user interface which generates maximum ONG.
Now a lot of crypto supporters will say that this a tech stock so you can’t compare the normal companies P to E ratio with this. Okay then let’s be generous here and allow the P/D ratio as 40. Facebook’s P/E ratio is around 20 to 25 these days and it is a tech stock and a safer one than ontology I guess. Remember that these coins are more prone to disasters than stocks with proven records.
So if we divide 500 by 40=12.5 times more in which I have included the two horrible looking projects. Now, ontland looks like their own project which they might have created to influence the ONG transactions on the blockchain. If we assume that anyone out of these two projects fails(which is highly possible) than the new P/D ratio will be around “2600".Please see that ratio again.
Now let's talk about bitcoin NVT signal.
It is way high at this stage and we know with bitcoin other coins go down too if in case bitcoin goes down. I want you to go to this website and check the price of bitcoin whenever the nvt signal was this high.
I am not saying that the ontology team is bad or something and I can’t say anything at this stage because I haven’t gone deep in what they are doing and what is their background. I don’t need to at this stage because numbers are good enough at this stage. It is the market who have overvalued this project and there is no role of the team in that. I am also not saying that this project can’t become successful in the future and I don’t like to stay depended on the future much when it comes to investing(even though you have to but I try to avoid it as much as I can). It reduces risk.
So with the bitcoin NVT signal so high and P/D ratio around 2600 if we deduct one of the project’s ONG demand than I see a very high probability of price going down in the future. Now remember that price may not go down immediately but it will in the longer term(always make decisions for long term not shorter term)unless the team pulls up something big in the meanwhile. So keep an eye on the developments of the project. It has to be reflected in the demand of the ONG too. There can be a reverse black swan event where the team can pull up something big. In that case, you can close your short immediately. Remember we are not gamblers and always follow the rule no.1 Of Warren buffet” never lose money”.
Now shorting is an art and it is very hard because you already have a downside when you short. So what I would do is invest 4 percent (max) of my portfolio with not more than 2.2x leverage. Which will lead to my liquidation price around 2.3 USD. I think anything above 1.20usd /ontology is a good price to short. So for the price to reach at 2.3, there will be a need for more 1 billion dollars of buying which can be a little hard at this stage for buyers but this is market and people can be irrational at any time.
I just want to mention that I am not at all a trader and this is a strictly valuation based trading with long term plan so I think this can be a successful adventure. You can short Ontology on bitmax. Click here to visit bitmax . If you want to have any more help with this article than you can join me in my telegram here .
I have tried to calculate this with every angle but still, if you believe that I am missing something then you can let me know. I will be more than happy to know that.