6 reasons why it is hard to value cryptocurrencies

From decentralised ecosystems and diverse tokens to limited data and constant experimentation. Katalin Tischhauser, Head of Research at Sygnum, gives six reasons why valuing cryptocurrencies is like solving a puzzle.

This article is part of Sygnum’s Valuing crypto assets investment research report.

There is little consensus so far about how to value cryptocurrencies. This lack of understanding has also led to investors occasionally bidding up the prices of largely meritless tokens, such as a number of meme coins as well as tokens that claimed to have a utility but actually had none.

There are a number of reasons why it is difficult to value cryptocurrencies:

1. Decentralised ecosystems represent entirely new business models, and the value creation and value accrual to the tokens is still poorly understood.
2. The crypto market encompasses a disparate universe of different token types that require different valuation methods, and this creates further confusion.
3. Most of the value of cryptocurrencies is premised on significant future growth, and valuing growth is typically difficult, as there are few tangible data points.
4. Crypto assets often have various unique features that influence their value, making their valuation even more complex — at this point the understanding of the value of security, governance and utility is limited.
5. Crypto assets allow entirely new models for incentive structures, funding growth and innovation and the distribution of the economics, and the industry is constantly experimenting with various new models, which further complicates the valuation.
6. While there are data points that can be used as inputs for valuation models, the availability, accessibility and quality of data are further obstacles.

THE CHALLENGES OF VALUING CRYPTO ASSETS

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