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Published in:
A Brief History of Money Read chapter Read first chapter

2023 | OriginalPaper | Chapter

16. Value Investing in Cryptoassets

Author : Thomas Jeegers

Published in: Understanding Crypto Fundamentals

Publisher: Apress

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Abstract

As introduced at the beginning of this book, value investing, or fundamental analysis, focuses on fundamentals. It identifies and measures the pillars giving real economic value to an asset. Value investors compare the asset’s value with the asset’s price and invest when the latter is significantly lower than the former. Gains materialize for the investor when the price eventually converges toward the underlying value.

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Footnotes
1
This approach is not perfect because the necessary purchase costs of ASICS are fixed costs for miners, acting as a barrier to entry and distorting the equilibrium price. Nevertheless, since they are comparatively small in proportion to electricity costs and since they are sunk costs once the purchase is made, electricity costs are still a valid proxy for demand.
 
2
Post on the BitcoinTalk forum on February 21, 2010 [89].
 
3
Number of identity-verified cryptoasset users from 2016 to November 2022, Statista [85].
 
4
GWI data published by Datareportal’s Digital 2022 Global Overview Report [78].
 
5
Since September 2022’s The Merge event, Ethereum is occasionally deflationary (e.g., a deflation rate of 0.00002% per January 2023), though this rate varies over time.
 
6
Modeling Bitcoin Value with Scarcity, PlanB, Medium [75].
 
7
Rounded data from the World Gold Council, 2022. In addition to the 200,000 tons figure, another 50,000 tons of unmined gold have been identified.
 
8
In statistical terms, it has a coefficient of determination (R2) over 95%.
 
9
Bitcoin Stock-to-Flow Cross Asset Model, PlanB, Medium [74].
 
10
Data per the World Cold Council; Above-ground stocks report of 8 February 2023 [76].
 
11
“Is Bitcoin In A Bubble? Check The NVT Ratio,” Willy Woo, Forbes [77].
 
12
An increased average coin dormancy indicates that long-term holders sell their position, while low average coin dormancy indicates higher confidence as investors hold their coins longer.
 
13
Why Every Fixed Income Investor Needs to Consider Bitcoin As Portfolio Insurance, Rock Star Inner Circle [92].
 
14
Technically, an objective valuation is impossible to achieve. All valuations and models rely to some extent on arbitrary assumptions, either by the analyst or by other market players. Even a comparison to electricity costs or gold’s market value ultimately depends on what other people think electricity or gold is worth. In this sense, there can be no objective valuation, for any asset.
 
15
Hans Hauge, Introducing Binary Adjusted BDD, VOCD and Reserve Risk, May 2019 [82].
 
Metadata
Title
Value Investing in Cryptoassets
Author
Thomas Jeegers
Copyright Year
2023
Publisher
Apress
Book
Understanding Crypto Fundamentals

Print ISBN: 978-1-4842-9308-9

Electronic ISBN: 978-1-4842-9309-6

Copyright Year: 2023

DOI
https://doi.org/10.1007/978-1-4842-9309-6_16

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