This thesis aims at elaborating fundamental valuation techniques for crypto assets. Since research in this field is still at the very beginning this work intends to provide investors, financial analysts, token issuers, researchers or crypto enthusiasts a framework of how to determine the fundamental value of this emerging asset class. To do so, three main research questions are formulated:
1. How can the fundamental value of crypto assets be determined?
2. Which valuation techniques can be applied to the different token types?
3. What is the fundamental value of the IOTA token?
In order to answer the questions, the thesis will progress in the following manner: First, the reader will be introduced to distributed ledger technology (DLT) and blockchain, which represent the underlying technology of crypto assets. In the next step the term ‘crypto asset’ will be defined. It will be elaborated to what extent crypto assets can be considered as a new asset class and how crypto assets can be classified into different types. The terminological part will end up with a discussion of the fundamental value of this new asset class.
The main body of the thesis consists of two parts, a theoretical (conceptual) and a practical (applicational) part. The theoretical part aims to collect and evaluate all current valuation methods for crypto assets. Different absolute as well as relative valuation techniques will be elaborated, namely the Discounted Cash Flow (DCF) model and CAPM, the asset rotation theory, the Equation of Exchange, the NVT ratio, Metcalfe’s Law, the cost of production approach as well as the accessibility discount. The second part of the main body comprises a case application of one valuation model, namely the Equation of Exchange, to the IOTA token.
Table of Contents
1. Introduction
2. Objective and approach of the thesis
3. Terminology and definitions
3.1 Definition of distributed ledger technology and blockchain
3.2 Definition and classification of crypto assets
3.3 About the fundamental value of crypto assets
4. Conceptual framework: Valuation techniques of crypto assets
4.1 Discounted Cash Flow (DCF) and CAPM
4.2 Asset rotation theory
4.3 Equation of Exchange (Quantity Theory of Money)
4.4 Network Value to Transaction (NVT) ratio
4.5 Metcalfe’s Law
4.6 Cost of production approach
4.7 Accessibility discount
4.8 Key findings
5. Case application: Valuation of the IOTA token
5.1 About IOTA
5.2 Valuation of IOTA
6. Conclusion
Objective and Key Themes
This thesis aims to develop a conceptual framework for determining the fundamental value of crypto assets, a nascent and highly volatile asset class. By evaluating existing absolute and relative valuation techniques—such as the Equation of Exchange, NVT ratio, and production cost models—the research seeks to bridge the gap between traditional financial analysis and the unique characteristics of decentralized ledger technologies, ultimately applying these methods to estimate the value of the IOTA token.
- Fundamental valuation techniques for emerging crypto assets.
- Taxonomy and classification of different crypto asset types (utility, security, etc.).
- Applicability of traditional models like DCF and CAPM to non-traditional digital tokens.
- Case study application of the Equation of Exchange to the IOTA token ecosystem.
Excerpt from the Book
3.1 Definition of distributed ledger technology and blockchain
It is quite important to understand how the underlying technology of crypto assets, namely distributed ledger technology and blockchain, work in order to understand how crypto assets derive their value.
The World Bank defines distributed ledger technology, short DLT, as a new and fast-evolving approach to record and share data across multiple ledgers, which each have the exact same data records. You can think of DLT as just a distributed database that eliminates the control over the ledgers by one central entity (World Bank, 2017, p. 1).
The decentralized nature of DLT allows all participants in a peer-to-peer network to record any kind of “reality” such as ownership, transaction records, knowledge etc. without relying on a trusted central party. There exists, at any point in time, only one version of the ledger and each network participant owns a full and up-to-date copy of the entire ledger (World Bank, 2017, p. 5). The following graph (Figure 2) illustrates the general functioning of DLT compared to centralized ledgers:
Summary of Chapters
1. Introduction: Provides an overview of the rapid growth of the crypto market in 2017-2018 and identifies the necessity for new fundamental valuation techniques for this emerging asset class.
2. Objective and approach of the thesis: Outlines the research questions and describes the two-part structure of the thesis, combining a theoretical analysis of valuation models with a practical case study on IOTA.
3. Terminology and definitions: Explains fundamental concepts including distributed ledger technology (DLT), blockchain, and the classification of various token types within the crypto ecosystem.
4. Conceptual framework: Valuation techniques of crypto assets: Evaluates various quantitative methods for asset valuation, ranging from DCF and the Equation of Exchange to the NVT ratio, Metcalfe’s Law, and production cost analysis.
5. Case application: Valuation of the IOTA token: Applies the Equation of Exchange to the IOTA project, analyzing its target markets and providing a scenario-based valuation of the token.
6. Conclusion: Synthesizes the findings, discusses the limitations of current valuation models, and provides an outlook on the future of crypto asset analysis.
Keywords
Crypto assets, Distributed Ledger Technology, Blockchain, Valuation, Fundamental Analysis, IOTA, Tangle, Equation of Exchange, NVT Ratio, Metcalfe's Law, Market Cap, Tokenomics, IoT, Utility Tokens, Asset Class
Frequently Asked Questions
What is the primary focus of this master thesis?
The thesis focuses on establishing a fundamental valuation framework for crypto assets to help investors and analysts assess these assets beyond speculative market price fluctuations.
What are the central themes discussed in the work?
The work covers the definitions of DLT, the classification of token types, and an in-depth review of quantitative valuation models like the Equation of Exchange, NVT ratio, and production cost approaches.
What is the main research objective?
The objective is to determine how the fundamental value of crypto assets can be calculated and to demonstrate this by applying the most suitable model to the IOTA token.
Which valuation methods are analyzed?
The thesis analyzes absolute valuation techniques (DCF, CAPM, Equation of Exchange, Asset Rotation, Cost of Production) and relative valuation techniques (NVT ratio, Metcalfe’s Law).
What is covered in the main body of the research?
The main body is divided into a conceptual part that reviews current valuation literature and an applicational part that conducts a case study on the IOTA token using the Equation of Exchange.
Which keywords characterize this research?
Core keywords include Crypto Assets, DLT, Blockchain, Fundamental Valuation, IOTA, and Tokenomics.
Why is the Equation of Exchange chosen for the IOTA case study?
It is chosen as the most sophisticated model for utility-based tokens, especially since other metrics like NVT or Metcalfe's Law are difficult to apply to the feeless IOTA Tangle.
What conclusion does the author reach regarding the IOTA token?
Based on the Equation of Exchange and assumptions about future adoption in IoT sectors, the author suggests a long-term fundamental valuation range that indicates the token is currently neither significantly over- nor undervalued.
How does the author address the risk of these models?
The author emphasizes that valuation models for crypto are sensitive to input parameters and should not be used as investment advice, but rather as tools to identify value drivers.
- Citation du texte
- Abdulkarim Ajouaou Saidi (Auteur), 2018, Valuation of Crypto Assets. A Conceptual Framework and Case Application to the IOTA Token, Munich, GRIN Verlag, https://www.grin.com/document/494016
