My friend Wesley Pryor asked me to share this with my Crypto community. Wesley is probably the best fundamental Crypto Currency investor I know. His charting skills have made me and my Crypto trading group a ton of money over the last year. If you are serious about Crypto Currency investing or just want to educate yourself then take the time to read this paper. Thank you Wesley and David!
It has become de rigueur -- even clichéd -- for financial analysts to warn of bubbles in the crypto-asset space. By nature crypto-assets generate no traditional cash flows or operational financial metrics such as earnings and EBITDA that may be used in conjunction with traditional fundamental valuation techniques. For lack of a functioning valuation model for crypto currencies, some analysts have defaulted to the assumption that inherent value must not exist. The incline of the price increase alone is considered sufficient evidence of a market bubble.
As in all markets, overvalued assets exist in the crypto space. Key fundamental drivers of token price may be defined, quantified, forecasted, and benchmarked to determine a crypto-asset's intrinsic value and attractiveness as an investment.
However intuitive, our position has not been a popular one. The cryptocurrency community has struggled to reach consensus on the metrics that should be captured and translated into a token's market price. Some argue that tokens have no inherent value and should be considered worthless. Others rely on analogies to gold's utility as a store of value or, eschewing fundamental principles of economics, believe that the market opportunity presented by crypto-assets should cause prices to move parabolically in perpetuity. As of late, investors have begun to use a rudimentary model of technical analysis, qualitative assessments of technology features, and the intensity of news coverage to guide their valuations. These attempt are largely descriptive and incorporate little insight into the fundamental impact of underlying drivers on token assets valuation.
Our investing philosophy is that tokens are no different than any other financial asset. By understanding and measuring the way in which these value drivers translate into token price, we may assess the intrinsic value of crypto-assets to make stronger, more informed investment decisions.
By David Grider, CFA and Wesley Pryor, CPA
