How do you value cryptocurrencies?
Over the last few days I’ve been reading so many posts and tweets about the ‘impending doom’ for-seen by crypto-sceptics, and even enthusiasts, who are acutely aware of the ramifications of any drawn out bull run. Price must consolidate, there will be strong movements in the opposite direction. To deny this is to be totally unaware of basic market fundamentals. People (or let’s get real — institutions) buy, make a profit, then sell. Lots of buying pushes prices higher. Selling pushes price lower. I’m not sitting in a blind euphoria assuming that these assets will endlessly rise.
But what frustrates me is the cries that crypto is a bubble, a scam, that it has ‘no real value’. You’d think in 2021, with increasing institutional, corporate and even governmental adoption worldwide, that we’d have more faith. I’ll admit though, it’s a hard stance to argue when prices for most coins have risen by so much over such a short time.
I read a post this morning quoting the meteoric Chainlink rise over the last 2 years (at some periods over 90x). It said ‘Wake up’! — ‘Who is manipulating the price? What happened last year? Did LINK Chainlink save the world from cancer?’
This type of comment is emblematic of a widespread problem — people don’t know how to value cryptocurrencies.
The main issue is that the entire concept of ‘value’ has been completely turned on its head — not just in crypto but everywhere. Whereas in the past, (and for many people this is still the case) ‘value’ was fixed on tangible assets, on fundamentals and brick and mortar, on solid gold, this just isn’t true for the modern world. Instead ‘value’ has become an extremely fluid concept based more on tribalism and status. In essence, it tracks the size, strength and level of belief held by a given community.
I listened to an awesome podcast a while back which talked about brands being tribal. This really resonates with me when I think about cryptocurrencies. I trawl the chat room of tradingview and see the Chainlink warriors, the Cardano fanboys, the XRP haters, and can only liken it to the battle between brands.
Let’s get tangible. When you compare the price difference between a simple Lenovo laptop and an Apple Mac, you know that — while arguably there’s a better user experience, a nicer look, and perhaps greater customer support from Apple — most of the value difference doesn’t come from palpable features. Apple’s share price, and market domination is driven by the Apple tribe, the people who either; believe in the brand, the vision of the company or the status they gain from being in the Apple community.
Ignoring FOMO purchasers who jump on the bandwagon, when you buy into a cryptocurrency you’re buying into the vision of the creators, you believe in the use case, or you simply want to be a part of the community.
From it’s early days when Bitcoin was the domain of geeky gamers trading on MtGox, to the years of adoption by the DarkWeb, right up until now where blockchain technology has become synonymous with what’s ‘cutting edge’ — cryptocurrency has captured peoples imaginations in a way that stocks and shares, FOREX and indices, never could. Let’s face it — cryptocurrency is a cool brand, and there’s a myriad of even more niche and interesting brands within it.
Most of my generation navigate this fluid expression of value naturally, because we grew up in it. We’re the generation of UBER (at one point losing 3 billion a year and share price still rising) of Tesla, of Facebook, Twitter and Apple. We have seen the power of owning a community, and what happens when you lose it (Friendster, Myspace, Bebo to name a few). It might be uncomfortable for some to place their money in something that has ‘no inherent value’, but we’re used to putting our faith into communities, and backing projects that could change the world as easily as they could come to nothing at all.
So how do you value cryptocurrencies?
You value them the same way you value anything else. By deciding just how much you want to be a part of it.