By Research Team
The crypto finance industry presents institutional investors with a myriad of promising opportunities. However, many firms express frustration at the challenge of assigning value to digital assets, which is why Strategic Coin has set out to provide investors with the educational materials and in-depth market research reports they need to navigate the crypto finance ecosystem with confidence.
Below, this article explains strategies for valuing digital assets:
Valuing bitcoin and other cryptocurrencies presents investors with systemic challenges. Since they are a combination of currency, commodity, and technology, they do not lend themselves well to conventional financial valuation models. Consequently, it is difficult to accurately predict short-term price performance.
However, investment firms can form medium-term to long-term outlooks by tracking the degree of public adoption. A holistic approach to measuring adoption should include the following factors:
- An energetic development community that builds diverse applications around and on top of the underlying technology
- Increasing adoption of these applications in multiple economic sectors
- Consumer interest that is not directly tied to price speculation
- Favorable regulatory environments in major markets
Because most cryptocurrencies have fixed coin supplies or at least permanent rates of inflation, sustained and organic growth in these areas should result in a long-term increase in a cryptocurrency’s price.
Although initial coin offering (ICO) tokens bear technological and functional similarities to cryptocurrencies, they can often be evaluated using strategies based on traditional economic models. Through an initial coin offering, a startup can raise capital for project development by selling crypto tokens to investors. Tokens tend to fall into one of three categories: equity, asset, and utility.
- Equity Tokens: Equity tokens are company shares that are issued and traded on the blockchain, so they may be valued similarly to common stock, taking into account the systemic advantages and risks of the crypto finance ecosystem.
- Asset Tokens: Asset tokens are securities that derive their value from something that does not exist on the blockchain, such as precious metals or a reserve of fiat currency. However, asset-backed tokens often represent investments that earn income, such as shares of a rental property. These assets can be evaluated using a discounted cash flow model that forecasts future earnings.
- Utility Tokens: Utility tokens–often called protocol tokens or app coins–provide holders with access to a platform’s product or service. For example, Storj is a blockchain-based cloud storage provider that takes advantage of unused hard drive space on computers around the world. Storj tokens are used to rent storage space and are also paid out to people who contribute their extra hard drive space to the network. Utility tokens derive their value from the demand for a company’s product or service, so one can estimate their value by forecasting the company’s potential market share and dividing it by the total token supply.
To increase the accuracy of valuation models, firms should consult in-depth ICO and market research reports, such as those offered by Strategic Coin.
Strategic Coin is your go-to source for cryptocurrency investment research and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest initial coin offering, Strategic Coin will provide you with the information you need to take advantage of market opportunities within the crypto finance industry.