On January 24th 2018 Weiss Research Inc. released cryptocurrency ratings, becoming the first investment research and ratings group to grade digital assets. The ratings grade currencies from A to F, though all digital assets fell in the B to D range. But should you actually invest on this advice? A closer look reveals some further details that may make you think again.
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In the first release, bitcoin scored a C+ and ethereum and EOS were the highest rated coins, at B. Bitcoin only rated a C+ (fair) because it is “encountering major network bottlenecks, causing delays and high transactions costs”.
Weiss charges $468 USD a year for a subscription to weekly updates of its cryptocurrency ratings.
How Weiss Calculated Its Ratings
The company claims to use four indexes to calculate its ratings: the risk index; reward index; technology index and; fundamental index. Simplified, risk relates to price volatility, reward to returns/growth, technology to technological sophistication, and the fundamental index relates to basic usability features such as speed, public acceptance, etc. For a more detailed look at how they arrive at their ratings, their website outlines the methodology in reasonably solid detail.
The company faced a backlash from the crypto community for its ratings. Co-founder of Ethereum and Cardano creator Charles Hoskinson criticized Weiss’ authority on the topic, despite his own project gaining a large share of attention from the report’s findings:
Any rating that doesn't give Bitcoin an A has got some screws loose. Nearly ten years of wealth creation, innovation, massive growth, proven resiliency against crashes and billions worth of infrastructure. And all without a leader. Bitcoin is the standard
— Charles Hoskinson (@IOHK_Charles) January 24, 2018
In addition to the parallel distribution of a fake set of ratings by unknown parties, Weiss also complained of DDoS attacks on its website from Korea, and claimed to have been hacked. In a blog post, the agency cited “commentary on social media expressed considerable fear we were about to release negative ratings on their preferred currencies … this may be an attempt to thwart our release today.”
But Who Are Weiss and Why Should We Listen?
Despite the social media scorn it faced, the agency was the first to grade cryptocurrencies, potentially helping legitimize them in mainstream investment circles.
Weiss Research also supposedly has impeccable credentials as a ratings agency, with, as they claim, a “history of independence and accuracy in other investment sectors, as noted by the U.S. Government Accountability Office (GAO), Barron’s, The Wall Street Journal, and The New York Times, among others.”
But Weiss Research has a checkered past.
In 2006, the U.S. Securities and Exchange Commission initiated cease-and-desist proceedings against Weiss Research Inc., as well as effective owner Martin Weiss and Lawrence Edelson, who provides copywriting and editorial services to the agency. The respondents submitted offers of settlement which were accepted by the SEC.
The SEC found Weiss Research to be in violation of securities regulations that required investment advisers to be registered with the Commission pursuant to Section 203A of the Advisers Act. Weiss Research communicated trade recommendations to clients for subscription fees ranging from $1,000-$5,000 annually. It offered clients the opportunity to make use of auto-execution capabilities, whereby a trade recommendation sent to an investor would automatically be executed by a pre-approved broker-trader. Most Weiss Research clients chose this option.
Trading on Past Advice Would Have Lost Money
During the period of “at least September 2001 and December 31, 2004”, Weiss Research aggressively promoted its premium investment subscription service with claims including that subscribers “who followed our recommendations scooped up 400% profits,” and also “bagged profits like 400% … 39% … 217% … 100% … 374% … 66% … 171% … 222%.” It had roughly 10,000 subscribers.
During that period, the company maintained internal performance records to track the hypothetical outcomes for any premium subscribers that followed every recommendation the company made. Those records were not published, however, and there is a good reason why. The SEC found that the internal records themselves calculated that any subscribers to most of Weiss Research’s premium services who followed all of their recommendations would have lost money.
Weiss Research agreed to discontinue its auto-trading facility and to disclose the true performance histories of all its subscription services. Some of its results are underwhelming, to say the least. Its “Adventure Capitalist Confidential” service routinely scored double-digit losses. Its “Uncommon Wisdom Daily’s Natural Resource Options Alerts” plan performed better, though did suffer from some staggeringly bad investment decisions.
In addition to releasing its actual investment results, the company also undertook to ensure it would cease releasing misleading or inaccurate marketing materials. It was also whacked with hefty fines: the company was fined just shy of $2 million; Martin Weiss around $100,000 personally and Lawrence Edelson $75,000.
What Do We Make of All This?
Weiss Research is a publishing company that sells newsletter subscription services to investors. However its record of investment success, since being forced to reveal it, is mixed at best.
If the methodology it employs to generate cryptocurrency ratings is as accurate as its gauge of quality in more traditional investment assets, its subscription service at $468 a year may be massively overpriced.
Many will trade cryptocurrencies simply on the rankings Weiss provided last week, but our advice — as always — is to perform your own research and due diligence, and don’t invest any money in cryptos that you aren’t prepared to lose.
What’s your take on the cryptocurrency ratings? Please share your thoughts in the comments.
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This article is meant for informational purposes only, and does not constitute financial advice. Bitsonline is not responsible for any gains or losses incurred while trading bitcoin, or any other digital asset.