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Does cryptocurrency have value, or is it just about price

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Does cryptocurrency have value, or is it just about price

One of the misconceptions in the cryptocurrency market is that there is no fixed way to value cryptocurrencies, and in this article we will talk about the valuation of cryptocurrencies, and we will answer the question, is it really just a price or does it have a value?!

It is in this context that The Economic time site has written extensively on the metrics for evaluating cryptocurrencies markets that can be applied. And on the efficiency of these markets, relative to traditional markets.

Think about the first time you heard of Bitcoin, Ethereum, or Dogecoin.

What attracted you to these assets? What made you buy?

  Assuming that someone bought a cryptocurrency, thinking that they will become a millionaire overnight, I am sorry to tell them that their belief is wrong, and they will lose.

From the principle that every investor should know value before price, let me first explain to you what valuation is.

 Cryptocurrency valuation:

First let’s agree, that valuation is the process of determining the true value of an asset, and this can be the worth of an asset relative to a particular financial metric such as revenue, profit, or book value. Furthermore, it can be the value of an asset relative to the industry or competitors, and it is measured against the price of a listed share.

  In the traditional stock market, the three most widely used valuation metrics are:

  • Price-to-sales ratio: the stock price to the revenue earned per share of the company.
  • Price to Earnings Ratio: The stock price to the profit earned per share of the company.
  • Price to book value: the share price to the book value of shareholders’ equity.

Cryptocurrency market valuation:

 In order to measure stock valuation, we need to know the company’s revenue and earnings.

Because cryptocurrencies do not contain such financial data, so what metrics can we rely on, and how can we run valuation analysis?

 To calculate the crypto market valuation model, we replace:

  • Price with fully diluted market value (FDV).
  • Revenue with total annual revenue.
  • Profits with protocol revenue.
  • Book value with total value locked .

 What are the main valuation metrics?

 Using this crypto metrics we mentioned above, we arrive at the following valuation metrics:

 1- Price to Sales Ratio:

 Fully diluted market cap value divided by total annual revenue (the last 30-day revenue expressed for the whole year).

 Revenue earned by the protocol is the total fee that users pay when using the protocol.

2-  Price to Earnings Ratio:

 Fully diluted market value divided by annual protocol revenue (protocol revenue for the last 30 days expressed for the full year).

 Protocol revenue is the proportion of total revenue paid to holders of digital assets, after paying for incentives to participants (such as liquidity providers) and fees are paid to the network.

3- Market cap to TVL:

 Market capitalization to the dollar value of all digital assets locked within a protocol.

 This shows how the market value the project, represented by the market cap, based on the actual use case of the project, represented by TVL.

How can one value cryptocurrency:

 During a rise or correction, valuation metrics are very useful.

 You can use the above metrics to see if a currency is undervalued or overvalued relative to its fundamentals.

 This allows you to buy on the cheap and sell on the high if those metrics are used correctly.

 You can use the below data resources platforms to measure the valuation of cryptocurrency:

Why is valuing cryptocurrency more efficient than valuing stocks?

 In traditional stock markets, valuation is based on metrics retrieved from quarterly or annual financial statements.

In the crypto market, however, the evaluation is based on metrics retrieved from the daily fee paid or the total value locked.

 This makes the cryptocurrency valuation model more efficient.

In conclusion, you should know that the crypto market is an evolving asset class, and if there are methodologies and strong valuation metrics, more ways to value cryptocurrency will appear in the coming years.

What you, as an investor, must adopt is a historic framework before investing in the crypto markets, and calculate the value before the price to know the appropriate times to buy and sell.

Does cryptocurrency have value, or is it just about price

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