I have had some conversations about the maturity of the cryptocurrencies market related to the maturity of the companies and how I miss to have the fundamental indicators as you can have for a public company (Revenue, Costs, P/E, balance sheets…).
The companies publishing cyptocurrencies are private companies and they do not have obligation to share this information, but there should be in the future a general consensus about how to valuate their assets, the coins they put in the market.
As everybody can easily figure out, I always has stated that there will be a moment where so many cryptocurrencies will disappear as they do not make sense, and others will survive as they make sense and provide value.
Well, I would like to understand how to valuate them (better before they disappear).
Value… where? on the transaction.
The basic value of a cryptoasset is the value provided to a given transaction. If you perform a transaction via the traditional or existing channel this has a cost, a speed of execution and a given security.
If you execute that transaction through a crytocurrency, is it cheaper? faster? more secure?…
On top of that, the volume of transaction:
- how many of these transactions are happening in the market?
- how many of these transactions are managed through this blockchain environment?
- What are the efforts of the company to attract more transactions to their ecosystem?
I’m a beginner on blockchain and on asset valuations, so I have look for the experts. I found this article written by Chris Burniske, where he explains how to do the valuation (he attaches a nice excel that helps a lot to understand the details).
Each cryptoasset serves as a currency in the protocol economy it supports. Since the equation of exchange is used to understand the flow of money needed to support an economy, it becomes a cornerstone to cryptoasset valuations.
The equation of exchange is MV = PQ, and when applied to crypto my interpretation is:
- M = size of the asset base.
- V = velocity of the asset (shows the number of times an asset changes hands in a given time period).
- P = price of the digital resource being provisioned (price of the cryptocurrency or crytoasset).
- Q = quantity of the digital resource being provisioned
A cryptoasset valuation is largely comprised of solving for M, where M = PQ / V. M is the size of the monetary base necessary to support a cryptoeconomy of size PQ, at velocity V.
- I need to understand better the calculation of the market value.
- Go deep on a real ICO and perform a valuation.
- Understand how to do a token utility calculation.