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Author Topic: [2018-02-15] The Hard Thing about Crypto Price Valuation  (Read 34 times)
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February 15, 2018, 05:03:32 PM

The article turned out to be more interesting than I thought. First they "obviously" cite Paul Krugman's "Bitcoin has no value" statement, and then elaborating on some statistics-based valuations that are mostly useful for traders.

It's the second part of the article where things become interesting, as they present some alternative ways to "value" a cryptocurrency. The links are worth to be read:

Quote from: Coindesk
Some current fundamentals being proposed for crypto assets are:

  • Network value-to-transaction ratio (NVT) – this measures the amount of traded volume as an indicator of how actively used it is
  • Daily active users (alternatively, daily active addresses, or DAA) – how many users use the crypto asset in transactions on a monthly basis?
  • Supply-demand economics applied to crypto assets via monetary theory

I see, however, a problem with the transaction-volume-based indicators: they don't take into account the impact of transaction fees. These incentive people and businesses to "bundle" transactions and to use off-chain methods. Also, spam attacks would affect these indicators. However, they are interesting as part of a "bundle" of tools to analyze a cryptocurrency's valuation (I also point to pablomp's approach, a monetary theory based approach that is a bit simpler than the linked one).

In the final part, they mention some "qualitative" measures to value crypto-assets ("team", "how do experts speak about it", "whitepaper") but these are mostly useful for altcoins (mostly for ICO tokens) and do not touch Bitcoin at all. And as they write in the article, the value of a whitepaper is very doubtful when there are already "whitepaper as a service" providers.

I would personally add two valuation measures that are not mentioned in the article:
  • the combined value of businesses connected to the cryptocoin. It may be difficult to estimate as most of them are not publicly traded, but it would be worth a try - because businesses are the entities that would lose most if the currency crashes (or fails) and therefore are likely to "back" it in some way.
  • the combined value of goods and services traded on platforms like BitPay or CoinPayments for Bitcoin. They may be only a subset of total "real economy trade volume" but are a good indicator for real usage. I wonder if there are statistics publsihed about the volume of these platforms.

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