On Thursday (30 August 2018), Bloomberg released a research report about the valuation of cryptoassets. This is the fourth part of a five-part series (on the cryptoasset market) that has been prepared by premier ICO advisory firm Satis Group.
The report describes three valuation methodologies for cryptoassets (excluding stablecoins):
- Top Down ("using the quantity theory of money to deduce the value of cryptoassets needed to support a forecasted economy)
- Peer-Based ("using multiples of network-specific metrics to arrive at relative valuations")
- Bottom-Up ("using discounted cash flow models to estimate value of networks that provide yield")
It also shows how each of these three methodologies may be applied to various types of cryptoassets. More specifically, it shows these examples:
- Using Top Down for "Currency, Platform, Privacy, Other Utility Sectors"
- Using Peer-Based for "Platform Sector, Exchange Sector"
- Using Bottom-Up for "Currency / Privacy Sector hybrid (e.g. DASH), Exchange Sector (e.g. BNB), Other Utility Sector (e.g. REP)"
The authors of the report recognize that these valuation methodologoies are not a good way of predicting prices in the short term, but they "believe over a longer time period, and especially as the industry matures, fundamental valuation techniques will begin to more closely approximate trading prices."
In particular, using the Top Down methodology on "Currency, Platform, Privacy, Other Utility", they arrived at the following forecasts for the top 10 cryptoassets (by market cap):
Using the Peer-Based methodology on "Platforms", they got the following result:
And using the Peer-Based methodology on "Exchanges", they got the result shown below:
Finally, here are the main takeaways from the report:
- They "estimate the amount of cryptoasset market value needed to support economic activities to expand from ~$500B next year to $3.6T in 2028"
- "90%+ of cryptoasset value will be derived from penetration of offshore deposits in the next decade"
- "Currency and Privacy networks will be the largest beneficiaries, as most fundamental value will stem from store of value use cases"
- "Upside" (five year) in Bitcoin ($96,000), Monero ($18,000), and Decred ($535), "cryptoassets which apply unique value propositions within deep and viral markets"
- "Downside" (five year) in Bitcoin Cash ($268) and "cryptoassets which attempt to inherit brand recognition and provide minimal technological advantage to incumbents"
- "Little value" (five year) in XRP ($0.01) and "cryptoassets which are misleadingly marketed, not needed within their own network, and have centralized ownership / validation"
- They believe that most "Other Utility" application-specific networks "hold very little value, in their current construct."
Featured Image Courtesy of Satis Group