How To Value A Coin
I am often asked how to determine the potential of a crypto-asset, whether it be a crypto-currency, a digital asset or a crypto-coin.
I think people are generally confused about the false valuations of the first Pioneer boom of crypto.
A crypto-asset MUST have an intrinsic value. Why? So people have a reason to buy it other than price appreciation.
What is the use case? What is the problem its solves or opportunity it creates?
An example would be as a reserve currency.
It could replace USD in international transactions, enabling faster, cheaper remittances (person-person international transfers]) or for use as a currency when your currency is weak. An extreme example is Zimbabwe, but also it’s used in many countries around the world.
What is the value of the use case?
Reserve Currency is estimated at $2–5billion.
A common mistake is to look at the market and try to hype it up. As an example, let’s say the total market for hotel bookings is $200bn.
If your coin is in this space, the ‘market’ or ‘potential value’ for your coin is NOT $200bn. You have to ignore the total market value because your coin would not be used for local hotel booking transactions, so that cuts out at least 80% and leaves approximately $40bn. Then estimate how much currency would be used where the currency is passed from deal to deal — maybe 5%, which leaves approximately $2bn. The estimated potential for your coin would be 5% of that, which equals $100 million.
This is why Ethereum could never be worth more than 10s of billions, rather than 100s of billions. So if it reaches 100s of billions, it should drop eventually. Because how much Ether is really needed to pay for the use of the Ethereum blockchain?
How can your business deliver?
Do you have the commercialisation strength to deliver the technology? Customer acquisition is ALWAYS the most expensive part of the process.
For example, I recently saw a coin valued at $50 million which was listed as the 97th most valuable on coinmarketcap.com.
Its market on a trading platform was big, but the coin value tiny. On top of this, they had no commercialisation policy and the strategy was run by millennials with no experience in commercialisation.
Their coin should be worth less than $10million and certainly not the $200million it was 12 months ago.
Their coin should be worth less than $10million, certainly not the $200million it was 12 months ago. This coin, whilst it had already collapsed by 90%, had 90% more to go.
This would make it illiquid.
Speaking honestly, I don’t think they ever had a chance for success, and an ICO just allowed them to raise more than anyone would haveever given them. For their sake, I hope they don’t waste their cash.
It’s time to wake up
Up till now, the global crypto market has been influenced by amateur investors. The influencers on Youtube, Twitter, and other platforms rarely, if ever, have a background in investment analysis.
The institutional world acts on the advice of these professional investment analysts. They will produce analytical research and will torpedo countless crypto coins’ use cases and thus their valuation. Its why the few current analysts and their senior crypto friends in funds all believe 99% of all cryptos are worthless.
If you invest in a coin which is not listed, then you MUST have confidence in two things. Firstly its use case, and secondly, the demand the company can create to support the coin price and liquidity.
Don’t forget to look at the use case behind the coin. Look at the DEMAND behind the coin.
Think. if I owned that coin, what would be the benefit? Now and in future.
ASIDE. I am involved with the DAC Coin of the Dacxi Ecosystem. We worked a lot on the coin valuation as Dacxi is designed for the nextcrypto wave.
The coin is a ‘membership’ coin. Its intrinsic value is based on benefits as an exchange coin, as a currency for the premium services in theDacxi Community and for pre-ico discounts on its upcoming crowd-funding programme.
The demand is based on the crowd of new retail investors, affiliates, and issuers in Australia and Malaysia and then all the global licences.
This is why, should it achieve its goals, in fact should it even achieve 10% of its goals, the DAC coin has the power to be a $1/coin value.