Tuur Demeester, the founding partner at Adamant Capital, a bitcoin (BTC)-related investment firm, recently shared “new tools” to help investors more accurately “value” bitcoin and other digital assets.
As explained in a detailed Medium blog post (published on February 20th), the tools assist investors in “approximating sentiment” by analyzing profit and loss and they also help in “estimating HODLer buying and selling.” Before explaining how more advanced tools can be used to determine the fair value of cryptoassets, Demeester noted that in 2010 - when bitcoin had first been introduced - users would try to estimate bitcoin’s value by factoring in the cost of electricity used to mine the cryptocurrency.
In 2011, there were some discussions among research analysts about whether it would be better to acquire BTC by mining it, instead of buying it off an exchange - Demeester revealed.
Trace Mayer, Willy Woo, Chris Burniske Develop Bitcoin Valuation Tools
Trace Mayer, an early bitcoin adopter, suggested in 2012 that the “daily moving average” (DMA) of bitcoin’s market cap be used as a “value indicator” - as it removes the “long-term secular uptrend” from the BTC price calculation. In September 2017, prominent crypto analysts Willy Woo and Chris Burniske developed the widely-used NVT ratio, which compares bitcoin’s market cap with its on-chain volume.
As mentioned in Demeester’s blog, Pierre Rochard, the founder of Bitcoin Advisory, Nic Carter, the co-founder of CoinMetrics.io, and Antoine Le Calvez, a data engineer at CoinMetrics, introduced Bitcoin’s “realized cap” (in October 2018) as a way to determine the cryptoasset’s value. The “realized cap” of BTC is the total value of all the UTXOs (unspent transaction output) “priced by their value when they last moved”, Demeester explained.
Advanced Bitcoin Valuation Tools: Realized Capitalization, Unrealized Profit/Loss
After studying and analyzing how previous bitcoin valuation tools were developed, Demeester’s firm, Adamant Capital, has created a “solution to collect data that places each circulating quantity of Bitcoin in its historical context, in the tradition of previous work such as HODL Waves, Realized Cap, and MVRV (Market-Value-to-Realized-Value).”
By valuing “every coin at the time it last moved” and aggregating all the transferred value by compiling a list of the transactions, we are able to calculate the “Realized Capitalization.”
"Creating Tools That Measure Changes In Saving Behavior"
“Subtracting the Realized Cap” from the present market capitalization of the crypto market, or the particular cryptocurrency being valued, we arrive at the “Unrealized Profit/Loss (P&L)”, Demeester explained. Other tools recently proposed by Adamant Capital include “Relative Unrealized P&L” - which may be “interpreted as an indicator of investor sentiment”, Demeester argued.
According to Demeester, the conclusion of the firm’s bitcoin valuation research study is as follows:
By creating tools that measure changes in saving behavior on the Bitcoin settlement layer, we believe to have meaningfully contributed to the valuation debate. Relative Unrealized Profit/Loss in Bitcoin tells us about Mr. Market’s emotional state, HODLer Net Position Change gives us information about how Bitcoin whales are moving their pieces on the chessboard, and Liveliness gives us a powerful tool to meaningfully compare long-term investor activity, as well as a platform for building new valuation measures in this space.