Cryptocurrencies are one of today’s hottest asset classes to invest in. But what is the intrinsic value of cryptocurrencies and is there any analysis tools or models that can help us to evaluate them. To find this out, I made a quick research and got a brief draft summary of the topic. The following content is definitely not the final answer to the question, but the first version of the answer. Hope this blog will help you and will not mislead you. So be critical with the content below.
The intrinsic value of cryptocurrencies:
- a medium of exchange
- as a store of value
- speculative interest
The logic behind these is that some people trust in bitcoin and bitcoin-like cryptocurrencies and accept them as a medium of exchange. And when these cryptocurrencies achieve success as a medium of exchange, the success will make these cryptocurrencies have a function of storing value. Furthermore, the huge volatility of the USD price of the cryptocurrencies makes them a very good speculative tool. However, the violent volatility will have negative effects on its properties as a medium of exchange. Because as a medium of exchange, people tend to have a stable expectation on the currency.
One of the ways to evaluate the cryptocurrencies is that:
- To look at the current worldwide value of all mediums of exchange and of all stores of value comparable to cryptocurrencies, and calculate the value of bitcoin’s projected percentage
- Estimate for the global value of mediums of exchange and stores of value.
- Estimate how much is the percentage cryptocurrencies achieved of total exchange valuation.
- Calculate the comparable stores of value of the whole cryptocurrencies according to the percentage.
- Give different cryptocurrencies different weights. (by the proportion of the whole transaction made by this cryptocurrency)
- Calculate the value of a specific cryptocurrency by its weight in the total package.
- Calculate the value of one piece of a specific cryptocurrency. (total value/total amount of this cryptocurrency)
An example is like this:
Our total estimate for the global value of mediums of exchange and stores of value thus comes to 72.1 trillion US dollars. If bitcoin were to achieve 15% of this valuation, its market capitalization in today’s money would be 10.8 trillion US dollars. With 21 million bitcoin in circulation, that would put the price of 1 bitcoin at $514,000. That would be over 1,000 times the current price.
This is the answer v1.0. I hope that I will have some new findings in the future and made more updated answers to this question.
References:
What Is Bitcoin’s Intrinsic Value?
https://www.investopedia.com/articles/investing/091814/what-bitcoins-intrinsic-value.asp
Do Cryptocurrencies Have Intrinsic Value? It Depends
https://www.investopedia.com/news/does-crypto-have-intrinsic-value-bitcoin-ethereum/
How to Value Bitcoin and Other Cryptocurrencies
