Email of the day following up on my piece on valuing cryptocurrencies
Comment of the Day

November 23 2020

Commentary by Eoin Treacy

Email of the day following up on my piece on valuing cryptocurrencies

Thanks Eoin, but that still says nothing about what its value ought to be. With Tech companies there’s a long-term possibility of earnings for which a multiple can be applied or a Sales multiple for which there will be a precedent or relative multiple. There seems to be nothing of the sort for Crypto. So again, I’m left scratching my head as to what price should be paid for these, other than some chart history of where the price has been previously.

Eoin Treacy's view

The short answer to this question is that it is impossible to value an asset while it is still a fad. It might seem odd to still speak of cryptocurrencies as a fad but they have not yet made the leap to widespread adoption despite significant steps in that direction. When/If real world applications and mass adoption occur, it will be much easier to value. Of course, prices would necessarily be much higher once the value proposition is obvious. My firend Charlie Morris advocates using a network strength metric for value but I don't know how useful that is for trading. 

Ben Thompson quoted this section from Geoffrey Moore’s book on big tech company marketing in his eletter this morning.

That may seem like a miracle, but that is in essence what high-tech marketing is all about. Every truly innovative high-tech product starts out as a fad—something with no known market value or purpose but with “great properties” that generate a lot of enthusiasm within an “in crowd” of early adopters. That’s the early market. Then comes a period during which the rest of the world watches to see if anything can be made of this; that is the chasm. If in fact something does come out of it—if a value proposition is discovered that can be predictably delivered to a targetable set of customers at a reasonable price—then a new mainstream market segment forms, typically with a rapidity that allows its initial leaders to become very, very successful.

This is a good summary of where the crypto market is today. We’ve had some of the initial excitement.  The sector survived the first big plunge, but we do not have a definitive answer whether cryptocurrencies will successfully displace all or none of the cross-border transfer market, the global contracts sector, become a bastion for hard money advocates.


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