Transcript
Evaluating Cryptoassets
Patrick
Chris, this is going to be our deepest dive into nascent strategies for actually valuing individual crypto-assets. You've got a brand new book that's sitting in front of us that's out, I think, literally today. I've read a ton of what you've written on the topic. And I think you are, at one point, were the only traditional buy-side analyst that was covering these things, trying to deal with them as you would deal with an equity. So we'll start by your overall method for evaluating cryptocurrencies and then dive into what you think maybe some of the ways that Wall Street, the broader world will collectively decide appropriate ways to think about underlying utility value of these things.
Chris
Great. Thanks, Patrick. Since these are new assets or we're dealing with a new asset class, we have to create new valuation methodologies. And the starting point within equity space is discounted cash flow models. The problem with protocols is they don't have business models, they don't have cash flows. They have incentive models that catalyze a community to pull together and provision a decentralized digital good or service. And so evaluating how the native asset that incentivizes that economy to work is very different from a DCF. That said, it can all be boiled down to a similar mindset in terms of going year by year and what are the demands for this asset and what does the economy that it supports look like. Now, the native or the cornerstone model within the valuation is the equation of exchange, MV equals PQ. And we can get into-