Dive into the latest models and tools for analyzing cryptoassets, covering decentralized apps, smart contracts, and bitcoin.
The global association of investment professionals, CFA Institute, has published a new guide on the valuation of cryptoassets. Its goal is to provide investment professionals with the most up-to-date models and resources for analyzing cryptoassets in relation to decentralized applications, smart contract platforms, and bitcoin.
The creation of a framework for valuing cryptoassets is aided by the release of the new CFA Institute cryptoasset valuation guide. With the rise in cryptoassets over the last ten years—their market capitalization is today estimated to be above $1 trillion—valuation has become a crucial topic.
Any investor or investment professional who is interested in or considering an investment in cryptoassets must analyze the value drivers of the market because it has experienced tremendous upheaval and price volatility at the same time.
The guide’s valuation methods comprise more recent models tailored to cryptoassets in addition to basic approaches like discounted cash flow analysis and relative valuation techniques appropriated from traditional finance.
According to the CFA Institute’s guide, decentralized applications, like decentralized exchanges, can be valued using either an intrinsic value approach or a relative valuation approach using a discounted cash flow model. Meanwhile, smart contract platforms, like Ethereum, can be valued from two perspectives: the platform is either considered as a network or as a cash-flow asset.
Decentralized apps within the same industry can be valued using metrics like price-to-sales, price-to-fees, and market capitalization to net assets ratios, or they can be compared to their traditional finance counterparts.
“Never use a single valuation model or metric in isolation”
“This guide provides a framework for investment professionals to undertake a thorough analysis of the valuation drivers of cryptoassets, including fundamental characteristics like cash flows, growth rates, and tokenomics,” says Rhodri Preece, CFA, senior head of research at CFA Institute.
“Statistically robust cryptoasset appraisals are difficult due to the paucity of historical data, and current valuation algorithms have their shortcomings. It is not appropriate to utilize any one valuation model or indicator in isolation.
The original Security Analysis by Graham and Dodd was published in 1934, but it took decades for a recognized framework for equity investment valuation to develop. Since the majority of cryptoassets are little older than ten years, opinions regarding their legality and price in investment portfolios differ greatly, which is not surprising.
The only way valuation models may evolve and eventually come to an agreement is by criticism and discussion. These crucial discussions and market developments might be informed by this primer on the valuation of cryptoassets.
