Weiss Cryptocurrency Ratings
Weiss Ratings was all over the news last week for releasing the world’s first cryptocurrency ratings. This adds to the list of many firsts achieved in the cryptocurrency world. However, Weiss Ratings’ report has attracted its share of criticism and even cyberattacks since then. The agency says that this is the dawn of a cryptocurrency revolution and the blockchain technology powering Bitcoin, Ethereum, and most other cryptocurrencies could radically transform major aspects of our lives.
So, what went wrong?
Weiss Ratings’ crypto list included the top digital tokens like Bitcoin, Ethereum, Ripple, and Dash, as well as 70 other cryptocurrencies, with the agency claiming it helped investors identify the most promising cryptocurrencies to invest in. Wiess has also explained its rating methodology, which is where things start getting confusing.
The financial rating agency analyzed thousands of data points to evaluate each cryptocurrency’s risk, reward potential, blockchain technology, adoption, security, and other factors. The ratings report assigned grades to over 70 digital coins based on the Weiss Cryptocurrency Ratings model, which consists of four key indices: Risk, Reward, Technology and Fundamental. (Source: “The Weiss Cryptocurrency Ratings Explained,” Weiss Cryptocurrency Ratings, January 24, 2018.)
The ratings agency gives the top rating to Ethereum. Weiss ratings on Bitcoin turned out to be lower than that of Ethereum because, as the agency explains it, BTC fell short in two important areas: extreme price volatility and its weakness in scalability.
However, the important point to note here is that BTC is the bellwether of the cryptocurrency world. Even a slight negative news flow is bound to impact its price more than the price of any other digital coin. This is bound to lead to extreme volatility. This sentiment has been shared in the following tweet by Ethereum co-founder Charles Hoskinson:
Why Does Weiss’ Ripple Ratings Raise Doubts?
And now, we come to perhaps one of the most controversial aspects of the Weiss cryptocurrency ratings report: the Weiss ratings on Ripple. The ratings are at par with its rating on Dogecoin. For those who are not able to recall what Dogecoin is all about, it is a coin that was created as a parody currency, and even its founder had expressed his concern saying that, “…I think it says a lot about the state of the cryptocurrency space in general that a currency with a dog on it which hasn’t released a software update in over 2 years has a $1B+ market cap.” (Source: “Dogecoin Market Cap Hits $1 Billion, to Its Creator’s Dismay,” CoinDesk, January 4, 2018)
Compare this with Ripple, which boasts of a number of top banks and financial institutions using its Ripple Network for real-time transfering of money around the world. Moneygram International Inc (NASDAQ:MGI) is one of its well-known clients, and it differs from many others in the fact that it has publicly expressed its intention to use the digital token of Ripple, XRP. With XRP, the transaction fees for payments can be reduced considerably, and as Ripple (the company) is able to convince more going ahead, there shall be more real-world applications of its native token.
Ripple XRP is trying to improve the current payment infrastructure, and even if it does not succeed in achieving all of its lofty goals, it would still appear to be of more value than Dogecoin. The Weiss Ratings agency may have put in lot of hard work into building these indices, but its explanation does not build confidence in the final result. (Source: “Thank you for your feedback! Here’s our response…,” Weiss Cryptocurrency Ratings, January 24, 2018)
Wiess’ ratings do not help first-time investors much if the message being projected is that both Ripple and Dogecoin are at par. Ripple XRP shall continue to make inroads, no matter what the ratings, as we have explained before.
The cryptocurrency industry is at a nascent stage and there is no way to predict the future prices. Any report that claims to do this should be read with a pinch of salt. It should not form a basis of investment and the potential investors would stand to benefit more if they did their own research. There are a lot of factors which are taken into consideration like the communities, enterprise partnerships, user adoption rate, real world utility, etc., and investors should be focusing on these more.
Only time can tell whether the independent analysis of Weiss turns out to be fruitful for investors. However, if the idea was to educate investors and help them make the right decision, then it appears to have missed the mark in case of its Ripple XRP ratings.