Crypto Currencies Valuation

Overview

Crypto Currency Valuation

Crypto Currencies analysis is not necessarily complicated, but not necessarily easy either. From a technical viewpoint, crypto currency value is driven by the forces of suppply and demand, just like any other asset. This means that the standard tools of technical analysis will apply to trading crypto currencies.

However, it is also true that crypto currencies do not have robust frameworks for calculating theoretical value. Whereas other assets have frameworks for identifying market mispricing through asset valuation, crypto valuation is harder to do.

One way to approach crypto valuation depends on whether the currency in question is likely to become a widely used currency in a given set of economies. Because crypto currencies are designed to have a fixed limit to the number of coins, one can take the total number of coins and compare it to the number of coins (or dollars) in the economy in question. If one accepts that the prices in an economy is a function of the amount of currency in circulation, (see Quantity Theory of Money) it is relatively straight forward to assume that the theorectical number of dollars per crypto coin would be equal to the total number of dollars in circulation divided by the number of crypto coins.