With wild swings in value and the rise of countless cryptocurrencies beyond bitcoin, an independent rating system for individual currencies makes sense.
Enter Weiss Ratings, the Florida-based research firm founded by Martin Weiss in 1971.
The sector's market turmoil created a need for an impartial rating system based on objective data and research, Martin Weiss told Benzinga.
“The primary drivers of investment decisions in crypt currency are not even rumors. It is chitchat on online forums. Little news and drivers have been enough to trigger a large buy or sell in cryptocurrency,”
“That is not a healthy environment for investors or for anyone. We felt it was time to provide objective ratings.”
The Weiss ratings didn't come without significant pushback from the enormously outspoken crypto community.
The response has been vicious, Weiss said: The rating agency’s website was hacked the night prior to the release, amid widespread social commentary in Korea that the ratings would be negative to cryptocurrency, but Weiss said he is not anti-cryptocurrency.
“There has been outrage. The crypto community believed we would be anti-crypto,” he said.
Weiss insists that he is fundamentally optimistic about the long-term future of the space.
“We have no axes to grind for or against. Our ratings are a blend. We are looking at it as an investment. Our ratings are for investors and new investors coming into the marketplace."
Four Components Of The Weiss Ratings
The Weiss ratings were developed looking at four areas within a computer model:
- Potential risk in terms of price volatility.
- Reward.
- A technology Index, which looks into the coins white papers, source codes and commentary to determine which currencies have the most robust features.
- A fundamental index, which measures cryptocurrencies' adoption, security and real-world performance.
Why Bitcoin Received A C+
Once the ratings were released, cryptocurrency frontrunner bitcoin was slapped with a C+, leading to questions on how the ratings and metrics were calculated.
“The one rating that has got the most flak was bitcoin,” Weiss said.
“Most felt bitcoin should be closer to an A. In our fundamental index, we give it a high grade. Bitcoin has the biggest adoption, the biggest brand; it gets a good grade for that. But in terms of risk, all the cryptocurrencies are getting a clip because of the extreme volatility,” he said.
Bitcoin did well in 2017, but was outperformed by many altcoins by a wide margin, Weiss said — since bitcoin is not a stellar performer among peers, it did not receive as high of a rating in Weiss' reward category.
The biggest challenges for bitcoin may come in the technology sector.
Barriers Ahead
Two challenges facing bitcoin stem from its technological underpinnings, Weiss said.
“I don’t think the original creators of bitcoin could anticipate the level of success it's had. The lack of built-in governance is an issue. Other altcoins are demonstrating for users to vote for upgrades on centralization,” he said.
Bitcoin doesn't have a built-in mechanism that can easily promote an upgrade in its technology and lacks a governance feature.
“Bitcoin can have minor upgrades to fix bugs, but not enough to keep up with the changing demands of the ecosystem. This is creating a lot of confusion in the bitcoin community. A lot feel an upgrade is necessary,” Weiss said.
“Imagine the first cell phone coming out and not being able upgrade it. Bitcoin is a victim of its own success — with the surge in usage you are seeing clogged networks and a very slow and expensive payment process."
Altcoins Cardano, EOS Show Promise
The average transaction cost for bitcoin is $10, leading to some pushback from merchants who have subsequently suspended usage or acceptance of bitcoin. Payment processor Stripe recently announced the suspension of bitcoin on its platform.
Weiss said he does see some promising cryptocurrencies that are combating some of the issues bitcoin is experiencing and taking the technology into the second and third generation, citing Cardano and EOS as examples.
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The Fintech World Responds To Market Focus On Cryptocurrencies
Disclosure: The author owns shares of BTC.© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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