How to Value a Cryptocurrency

Guide to determining the Intrinsic Value of Coins & Tokens

Photo by Igor Ovsyannykov on Unsplash

What is Intrinsic Value?

Lets unpack what we mean by Intrinsic Value

Determinants of Intrinsic Value

The composition of intrinsic value is made up of a number of factors and four major areas every investor should ask important questions include:

Market / Use Case

Is there an actual market or use case for this product? How big is the market potential? How does the revenue model work?

Community

How large, active and dedicated is the community? Is the community growing in size? Are they supportive and values aligned with the project? Is there descent or factions within the community?

Team Composition

Are the developers accomplished enough to code the project. Is the executive team experienced enough to successfully lead the project. How effective is the marketing team?

Funding

How is this project funded? If ICO, is there enough money to support development for the time-frame given? Is there a mechanism in place to generate funding internally. What is the revenue model once live — will it generate enough to support the future development of the project?

It’s a Rabbit Hole of Analysis…

Analysis paralysis…There is no shortage of data to sift and collate to determine intrinsic value and the overwhelming amount of information and data can cause many investors to lose sight of the main objective — to invest profitably. Not to be overwhelmed in research.

FUD & FOMO

We’ve all heard it before —Fear, Uncertainty and Doubt (FUD) as well as the Fear Of Missing Out (FOMO).

Quick & Dirty Method: Determining Intrinsic Value

There is a simple approach to determine the combination of all the factors that make up intrinsic value - this method smooths out the highs and lows caused from emotional and anomalous trading and provides the investor with a rough and dirty but highly effective method to determine intrinsic value (over the long-term).

More Advanced Methods:

Although this linear approach may seem rudimentary, there are more involved moving average calculations that include the Simple Moving Average (SMA) and the Exponential Moving Average (EMA). These calculations also help to identify the direction of the trend and help to define support and resistance levels.

How it Works: Do You See the Opportunities?

Looking at the chart below, you’ll see according to this method this cryptocurrency was overvalued between December to February and subsequently undervalued in the month of April (based on the one year trend line).

For the sake of simplicity, we are treating Intrinsic Value as linear.

Conclusion

As a cryptocurrency investor, you need quick and fast analysis methods for determining when and what coins or tokens to consider.

AltcoinInvestor.com | Tech Futurist | Analyst

Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store