Revisiting cryptoasset valuation

I interviewed at a handful of investment banks my senior year of college. To prepare, I would read PDFs on investment banking interviews and read wallstreetoasis posts. I didn’t get any offers so there was probably a better way to prepare.

I don’t remember much from that process, but I do remember trying to figure out what a discounted cash flow model was. I can still see the equation in my head:

DCF = CF1/(1+r)^1 + CF2/(1+r)^2 + … + CFn/(1+r)^n

Which I memorized, but didn’t understand. Revisiting it almost a decade later, I understand the philosophy and logic behind it intuitively. But as an impatient student that really didn’t know or care what investment banking was, I just wanted to pass the interview.

What may have piqued my interest was a more holistic understanding of how people figure out what things are worth. Given an asset–a company, a basketball team, a pair of sneakers, a college education, a cryptocurrency–how can you figure out if it’s under- or over-priced?

The valuation of companies and equities is well explored. And from what I can tell, Aswath Damodaran is the leading resource on the topic. So I’ve started to self-study his course on Valuation.

While there has been some pioneering work in valuing cryptoassets–notably Chris Burniske’s work and more recently a curation of prior art by Ikigai–there’s remains no consensus on how to value a given cryptocurrency.

The hypothesis I’ve explored over the years boils down to this:

  • Non-productive assets like BTC cannot be valued, they are simply priced by supply and demand

  • Productive assets like LEO can be valued by any number of traditional valuation methods (like intrinsic value i.e. DCF, comparables)

But I’d like to build a stronger foundational understanding of the concepts. So that’s why I’m taking the course. And I’ll likely take notes in the form of short blog posts relating the materials to topics in the crypto ecosystem.

If anybody would like to take it with me, I’d love study buddies!