Crypto valuation

Article written in May 2021 and updated in February 2022

💡 𝗪𝗵𝗮𝘁 𝗺𝗮𝗸𝗲𝘀 𝘁𝗵𝗲 𝗰𝘂𝗿𝗿𝗲𝗻𝘁 𝘃𝗮𝗹𝘂𝗮𝘁𝗶𝗼𝗻 𝗼𝗳 𝗰𝗿𝘆𝗽𝘁𝗼𝘀? 💡

Cryptos valuation has grown considerably in the past months, and people believe cryptos still have a lot of growth potential. However, these assets have also lost a fair bit of value in the past weeks, and if you started investing early May 2021, you could be quite worried already.

Here are the 2 main drivers of crypto valuation these days:

🎯 𝟭. 𝗣𝗲𝗼𝗽𝗹𝗲 𝘄𝗮𝗻𝘁 𝗺𝗼𝗻𝗲𝘆 𝗲𝗮𝘀𝗶𝗹𝘆 𝗮𝗻𝗱 𝗳𝗮𝘀𝘁:

a) Major cryptos, Bitcoin ahead, have gone up tremendously since their inception (10 years ago, 1 BTC = US$ 1…) This kind of figures make people dream.
We think: “If I can find the next Bitcoin and invest in it, I can be a millionaire easily.”

b) This rationale has driven up the prices of altcoins rather than Bitcoin in the past months.
We think: “Bitcoin maximum upside is x10 or maybe x20, it’s not enough, I can get x100 or x1000 with an altcoin.”
This greed has also driven up the price of assets like Doge coin, which doesn’t have much use besides its potential future $ value.

c) There is no tax on profits made by trading cryptos, which increase the upside of it.

🎯 𝟮. 𝗙𝘂𝘁𝘂𝗿𝗲 𝗽𝗼𝘁𝗲𝗻𝘁𝗶𝗮𝗹 𝘃𝗮𝗹𝘂𝗲 𝗮𝗻𝗱 𝘂𝘀𝗲:

This is a very interesting point. Cryptos and more generally blockchain have the potential to disrupt tremendously how we do things in many areas.

However, I rank this driver second and not first, because of:

a) The hype around Doge coin and other altcoins, which shows an investment pattern towards quick profit rather than actual product value

b) The recent 40-50% crash in a few hours (on May 19th). No asset hovering around its fair value would lose 50% in a few hours.

c) There is a consensus that Bitcoin has less potential use than other cryptos like Ethereum, Ada. However, Bitcoin is still far ahead in terms of market capitalization, not reflecting the actual potential of each crypto.

💡 𝗦𝗼 𝘄𝗵𝗮𝘁 𝗱𝗼𝗲𝘀 𝘁𝗵𝗮𝘁 𝗺𝗲𝗮𝗻? 💡

1. People sentiment towards cryptos is holding up their current valuation.
The likely emergence of regulations in Europe or in the US could shift that sentiment, and the bubble would then burst.

2. Investing now in cryptos is very risky, but could still be very rewarding.
The proper way to invest in a cryptocurrency today is to do your own research about its potential use and the projects behind it, as you would do it for a company.
You should also keep reassessing your investment decision every quarter, as new projects and applications could come up, or some projects could be given up on.

I hope this can help you guys make relevant decisions!

Nico