DIFFERENT

FUNDAMENTAL
VALUATION METHODS
RELATIVE VALUATION MODELS FOR
CRYPTOCURRENCIES

• There may be potential to use relative valuation models to make sense of related
cryptocurrencies. So far, however, there has been little compelling work done in this space.
• A few metrics that might be useful for comparing cryptocurrencies (some of these are ratios
themselves and other could be mixed and matched to create an interesting ratio)
 RELATIVE CONTINUED

• Network value to transactions ratio:

• The Network Value to Transactions (NVT) ratio measures the dollar value of a cryptocurrency’s
market capitalization relative to the daily on-chain transaction activity.
• Number of transactions per second:
• For cryptocurrencies that hope to reach mass consumer adoption and be used for transactions the
number of transactions per second supported may be a useful metric.
• Mining profitability:
• What the nature of mining is (dominated by large mining pools, accessible to smaller rigs or
individuals, etc.) and how profitable it is may be useful in understanding ownership structure
RELATIVE VALUATION LAST PART

• Various ownership base characteristics: Part of the value of a given cryptocurrency

might depend on:
• How many users have above a certain threshold in value of a cryptocurrency (for
example, how many users have more than $1000 worth)
• How concentrated the ownership of a given cryptocurrency is (for example, how much
of the cryptocurrency is owned by the top 1% of holders?)
• Trading volume on exchanges/distribution: Which exchanges the cryptocurrency
trades on and how the transaction volume is distributed across exchanges
 VALUATION METHODS CONTINUED

• “Store of Value” Thesis

• Token Velocity Thesis
• INET & Crypto J-Curve Thesis
• Network Value-to-Transaction Ratio (NVT)
• Daily active addresses/users (DAA)
• Comparable
• Your own metrics
Sources:
https://blockchainatberkeley.blog/todays-crypto-asset-valuation-frameworks-573a38eda27e
https://hackernoon.com/valuation-models-for-cryptocurrencies-f03e9437786e
 1. “STORE OF VALUE” THESIS

• Main idea:
• Crytpo is important because of ”store of value”

• Main argument:
• Currencies have three characteristics: store of value, medium of exchange, and unit of account.
• Assets such as bitcoin (BTC) or stable coins may have valuable “store of value” features, making them
highly attractive to investors.
• Digital currencies that have steady values by design (i.e., stable coins), or those whom the community
expects to either be stable or grow in price, make for attractive “store of value” coins
EXAMPLE

• Let’s reference gold.

• The world’s total value of gold bullion (price of $1300) = $8 trillion
• Here we would assume that Bitcoin would replace the full value of gold.
• At a capped supply of 21M BTC, each BTC could see a price of $380,000 if it were to
assume the same place in the world as a store of value as gold ($8T / 21M coins =
$380,000 per coin).
 2.TOKEN VELOCITY THESIS

• Main idea:
• Token transaction velocity is one of the key levers that determines long-term token value.

• Main Argument:
• Drawing from The Monetary Equation of Exchange (MV=PQ) [QTM]

• Velocity is a significant driver of token price, and the lower the velocity, the greater token price is
via an appreciation of M on the left side of the identity.
• The implication of this thesis is that tokens with low velocity, i.e. those that sit longer in wallets for
whatever reason (speculation, store of value, etc.), will see higher prices than other coins, all else
equal.
CRITICISM

• Velocity cannot be precisely defined or measured, whereas the model assumes that it can be
defined/estimated and employed to model value.
• The other factors in the equation, M, P, and Q can also not be easily measured or estimated. In fact,
economists would say that you need models to estimate any one of these variables along with their
correlations with one another.
• When velocity changes, the choice to record the effect in M, P, or Q is arbitrary and yields different
implications for token price. Further,V’s relationship and correlation with these factors is dynamic, and
assuming a steady relationship with P,Q, or M is again arbitrary and problematic.
• M itself is very difficult to measure in crypto land, as there can be locked up or un-mined currency that
may or may not be reflected in the model’s M value.
 3. INET & CRYPTO J-CURVE THESIS

• Main idea:
• token value is estimated using the Monetary Equation of Exchange (MV=PQ).
• price is further broken down into two components whose contributions evolve over
time:
• “current utility value” (CUV), which represents value driven by utility and usage today,
• “discounted expected utility value” (DEUV), which represents value driven by investment
speculation.

Note that INET is simply the name of a fictional token that the
analyst is evaluating
INET MAIN ARGUMENT

• A token’s current market value can be modeled and projected using inputs including
supply-side drivers, adoption and market saturation growth rates, token demand, and
velocity. Further, CUV and DEUV and their respective dynamic influences on token price
can be modeled and estimated.
• Following the monetary equation of exchange (MV=PQ), the token price equals the
projected monetary base (M) in the future divided by the number of coins in circulation
in the future; M is calculated as equal to PQ/V, or the value of on-chain transaction
volume (or “network GDP”) divided by token velocity.
CRYPTO J-CURVE THESIS:

• As the project develops, CUV and DEUV take turns driving token prices as the projects and
the market perceptions of them stabilize and mature.
• When a token is first launched, DEUV dominates as holders are excited about the tech and
expect future price appreciation.
• When enthusiasm wanes with inevitable technical roadblocks, the price declines and is driven
more by CUV from technical users and early adopters.
• As the team overcomes challenges, CUV quietly grows as the token becomes more widely
adopted. DEUV then catches up as speculation and excitement follow developer interest.
• Ultimately in the steady state, CUV should drive token price.
4. NETWORK VALUE-TO-TRANSACTION
RATIO (NVT)
• Main idea:
• NVT = network value / daily trx volume. NVT is a valuation ratio that compares the network
value (equals the market cap) to the network’s daily on-chain transaction volume.

• Main argument:
• Similar to a the popular equity P/E valuation ratio (either stock price / earnings per share, or
market cap / total earnings), NVT may indicate whether a network token is under or
overvalued by showing the market cap relative to the network’s transaction volume, which
represents the utility that users derive from the network. When the ratio becomes very high,
it indicates potential token over-valuation.
OBSERVATIONS

• The ratio best applies to assets whose on-chain transaction volume closely represents
utility to users. For instance, bitcoin’s on-chain transaction volume represents the utility it
provides to users to send money internationally for very low fees and a degree of
anonymity. For networks with high levels of transaction detail privacy such as Monero
and Zcash, the ratio is undefined. For networks with staking rewards such as Dash,
transaction activity resulting from staking would inflate the denominator, inadvertently
causing the ratio to be underestimated. This effect could be corrected for by subtracting
staking activity from transaction volume.
CRITICISMS:

• Transaction volumes tend to follow changes in price, so the two variables have an
endogenous and “reflexive” relationship, weakening the indicative power of the ratio.
• Thought leaders have experimented with the time frame used to measure daily
transaction volume. See the references below for some of this analysis.
• Contributors: Chris Burniske, Willy Woo, Coinmetrics team, Dmitriy Kalichkin
5. DAILY ACTIVE ADDRESSES/USERS (DAA)

• Main idea:
• Daily active addresses is a metric and indicator of the number of users that employ the
crypto network in transactions on a daily basis.

• Main argument:
• Similar to daily active users (DAU) for software and apps, DAA can provide information about
the number of users on a network, which can inform trends and complement other indicators
such as NVT and on-chain transaction volume
6. COMPARABLES

• This is borrowed from the equity analysis

• You assign a valuation to a coin comparable to the other ones that are most similar and
in the same industry.
• You compare them to the other crypto during similar stages than arrive at a market
valuation
• You would then have your market cap of your token.
7. YOUR OWN METHOD

• Again, these are people postulating with assumptions and sound reason to arrive at a
price for the coin.
• You guys are traders you should have some sort of reasoning, data, or logic that would
direct at a currency’s worth.
THANK YOU!!!!!