11 Sept 2018

Benchmarking Crypto Valuations

Cryptoassets pose an interesting challenge from a valuation point-of-view. They combine some properties of currencies, commodities and equities, but don’t quite meet the definition for any of them. The lack of immediate, underlying utility makes valuation attempts even more challenging.
So far, I have seen three broad approaches for valuing cryptoassets. The first uses the equation of exchange (MV=PQ) under the assumption that cryptoassets are a medium of exchange. The challenge with this approach is that, at least today, cryptoassets linked to blockchain protocols (like Bitcoin and Ether), aren’t really used as a medium of exchange to buy real-world products. They are a store of value, but mainly because they are viewed as speculative assets or used as a medium of exchange to purchase other speculative cryptoassets built on top of protocols. In other words, their value is tied to the value of speculative assets further down the value chain, i.e. decentralized apps (DApps) with linked crypto tokens.