Exploration of Cryptocurrency Valuation Models: From Public Chains to Bitcoin

Cryptocurrency has become one of the most dynamic and promising sectors in the financial technology field. With institutional funds continuously flowing in, how to reasonably assess the value of encryption projects has become a key issue. Traditional financial assets have mature valuation systems, such as discounted cash flow models and price-to-earnings ratios.

There are many types of encryption projects, including public chains, exchange platform tokens, decentralized finance projects, meme coins, etc., each with different characteristics, economic models, and token functions. Therefore, it is necessary to explore valuation models suitable for each niche.

1. Public Chain Valuation: Metcalfe's Law

The core content of Metcalfe's Law is that the value of a network is proportional to the square of the number of nodes.

V = K*N² (V is the network value, N is the number of active nodes, K is a constant)

This law is widely recognized in the valuation prediction of internet companies. Research shows that over a statistical period of 10 years, the value of some major social networking companies exhibits characteristics of Metcalfe's Law in relation to the number of users.

For Ethereum, research has found that its market value has a logarithmic linear relationship with daily active users, which basically conforms to Metcalfe's law. The specific formula is:

V = 3000 * N^1.43

Statistical data shows that this valuation method does have a certain correlation with the market capitalization trends of Ethereum.

However, Metcalfe's Law has limitations when applied to emerging public chains. For public chains that are in their early stages of development, the relatively small user base may make this method less suitable for valuation. Furthermore, this law cannot reflect factors such as staking rates, burning mechanisms, and the ecosystem's impact on total value.

2. Valuation of Trading Platform Tokens: Profit Buyback and Destruction Model

The platform tokens of centralized exchanges are similar to equity tokens, and their value is closely related to the exchange's revenue, ecological development, and market share. These tokens typically adopt a buyback and burn mechanism, and some also have a burning mechanism similar to that of public chains.

The valuation of platform tokens needs to consider the overall revenue of the platform and the token burn mechanism. A simplified valuation model can be expressed as:

Token value growth rate = K * transaction volume growth rate * supply destruction rate (K is a constant)

Taking the platform token of a well-known exchange as an example, its empowerment method has evolved from profit buyback to automatic destruction. Currently, this token adopts an automatic destruction mechanism based on price and block quantity, combined with a real-time destruction mechanism.

However, in practical applications, it is necessary to closely monitor the changes in the market share of exchanges and the impact of regulatory policies, as these factors may significantly affect the valuation of platform tokens.

3. Valuation of Decentralized Finance Projects: Token Cash Flow Discounting Method

Decentralized finance projects can adopt the token cash flow discount valuation method. The core of this method is to predict the future cash flows generated by the token and calculate the current value at a certain discount rate.

The valuation formula is:

PV = Σ(FCFt / (1+r)^t) + TV / (1+r)^n

Among them, FCFt is the free cash flow in year t, r is the discount rate, n is the forecast period, and TV is the terminal value.

Taking a certain decentralized trading protocol as an example, suppose its revenue in 2024 is 98.9 million, with an annual growth rate of 10%, a discount rate of 15%, predicting for 5 years, and a perpetual growth rate of 3%, with a cash flow conversion rate of 90%, an estimated valuation of about 1 billion can be obtained, which is close to the current market value.

However, this valuation method faces several challenges: governance tokens often do not directly capture protocol revenues; forecasting future cash flows is difficult; determining the discount rate is complex; the buyback and burn mechanisms adopted by certain projects may affect the valuation results.

4. Bitcoin Valuation: A Comprehensive Consideration of Multiple Methods

For Bitcoin, various valuation methods can be considered comprehensively:

1. Mining cost valuation method: In the past five years, the time when the Bitcoin price was below the mining cost of mainstream mining machines accounted for only about 10%, indicating that mining cost can be regarded as the bottom line of Bitcoin price.

2. Gold Substitute Model: Bitcoin is seen as "digital gold" and can partially replace the value storage function of gold. Currently, Bitcoin's market value accounts for 7.3% of gold's market value. If this ratio increases, the price of Bitcoin will correspondingly rise.

However, Bitcoin and gold have significant differences in physical properties, market perception, and application scenarios, and it is necessary to carefully consider these factors when using this model.

Summary

Exploring the valuation models of encryption projects is crucial for promoting the robust development of valuable projects within the industry, while also helping to attract more institutional investors to allocate cryptocurrency assets. Especially during market downturns, we need to use strict standards and fundamental logic to identify projects with long-term value. Through reasonable valuation models, we hope to uncover potential stocks in the encryption field during bear markets, just like the tech giants that emerged after the collapse of the internet bubble in 2000.