Calculating Fair Value For Cryptos | by Marcel Boer | Nov, 2022
When it comes to investing in cryptocurrencies, one of the most important things to consider is fair value. After all, if you don’t know how much a particular crypto is worth, you could end up overpaying or selling for too little.
Unfortunately, calculating fair value for cryptos is often more difficult than it is for other investments. This is because there are so many different factors to consider, from utility to supply and demand. As a result, arriving at an accurate fair value for a crypto can be a challenge.
However, it’s still important to try to calculate fair value, as it can help you make more informed investment decisions. In this article, we’ll show you how to calculate fair value for cryptos using a few different methods.
Bitcoin’s recent price drop has been attributed to a number of factors, including a lack of institutional investment, a drop in demand from miners, and an increase in supply. While the exact reasons for the price drop are still unknown, it’s clear that the market capitalisation of Bitcoin is not currently reflective of its fair value.
As the demand for Bitcoin decreases and the supply increases, the price is likely to continue to drop until it reaches a point where the market capitalisation reflects the true value of the Bitcoin in circulation. This could be a long and painful process for Bitcoin investors, but it’s important to remember that the market capitalisation is not the only factor that determines the fair value of a currency. The price and supply are also important factors to consider.
Bitcoin’s supply is limited to 21 million tokens and its inflation rate is programmed to halve every four years. This design guarantees that Bitcoin’s supply grows at a slower rate than demand, which gives it a built-in scarcity that other assets don’t have. This scarcity, combined with Bitcoin’s utility as a store of value and Medium of exchange, is what gives Bitcoin its fair value.
In other words, Bitcoin’s price is based on its supply and inflation rate. If there was an infinite supply of Bitcoin, it would have no value. And if Bitcoin’s inflation rate was higher than its demand, the price would also drop.
So, if you’re wondering how much a Bitcoin is worth, just look at its supply and inflation rate.
Cryptocurrencies have been on a tear lately, with Bitcoin leading the pack. But what’s driving Bitcoin’s price increases? In this article, we’ll explore three of the most important factors that reduces Bitcoin’s supply: coin burns, lock-ups, and buy-backs.
- Coin burns are when a cryptocurrency is destroyed. This usually happens when a team behind a project decides to reduce the circulating supply of their coin. This can be done for a variety of reasons, but the most common reason is to create scarcity and drive up the price.
- Lock-ups are when a team or individual agrees to not sell their coins for a certain period of time. This is often done to create stability and confidence in a project.
- Buy-backs are when a team or individual buys up coins in the open market. This can be done to help to stabilize the cryptocurrency.