The State of Crypto Report provides an in-depth look at the crypto industry over the past few months, as well as insights into crypto valuation frameworks.
ZURICH/NEW YORK, October 5, 2022 – 21Shares AG ("21Shares"), the world's largest issuer of cryptocurrency exchange traded products (ETPs) and a subsidiary of 21.co, today released the seventh edition of its State of Crypto Report – Our Insights into Valuation Frameworks, the Case for Cryptoassets.
The report provides an in-depth overview of the state of the cryptoasset industry over the last few months. In addition, it provides an update on the company’s original valuation methodology report first published in September 2020 – combining and building upon previous efforts to develop a fundamental framework for determining cryptoasset valuations.
Currently, there is no industry-wide consensus on how to value cryptocurrencies. However, given the rapid adoption of the crypto industry – which has grown 194% over the past two years from $390 billion to over $1.1 trillion in market value – there is a clear need for a framework around the asset class. The goal of this report is to propose valuation methodologies that reconcile the different approaches investors have taken in recent years.
Key topics explored in the report include:
The two approaches to valuing asset classes including crypto: intrinsic valuation and relative valuation. The distinctions between each framework are below:
Intrinsic valuation links the value of an asset to its capacity to generate cash.
Alternatively, relative valuation (also called “pricing”) estimates how much should be paid for an asset based upon what others are paying for comparable assets.
How investors can apply relative valuation approaches. This can be done in two ways - via ”multiples” and market sizing:
Multiples provide a standardized price estimate and help determine whether a given asset is undervalued or overvalued relative to its peers.
Market sizing tends to be more appropriate for “store of value” assets. This approach involves establishing a total addressable market (TAM) and a percent share the cryptoasset could capture.
How we measure the intrinsic value of cryptoassets. Since cryptoassets are not all equally the same, they cannot be valued with the same methods. The core difference from a valuation standpoint between Proof of Work (PoW) and Proof of Stake (PoS) assets stems from the system upon which the asset is built:
PoW assets like Bitcoin are “crypto-commodities” – an output of an energy-intensive process called mining used to verify, settle transactions and secure the network.
In comparison, PoS assets such as Ethereum are capital assets and trade high-energy mining for users on that asset’s network staking their own cryptocurrencies for transaction validations.
As a result, the cost for mining bitcoin is best measured with intrinsic value, while a discounted cash flow method for Ethereum makes more sense.
“We place education at the core of our research, and our team stands by free and publicly accessible content for investors of all backgrounds, whether retail or professional,” said Eliézer Ndinga, Director of Research at 21Shares. “We believe that crypto will disrupt and expand business models in financial services, eCommerce, art, music and more, but we’re still in the early days of this innovation. Amid the market turbulence of this spring and summer, it’s more important than ever that industry knowledge is readily available to all investors, and we see this report as a key stepping stone in that mission.”
Today’s release closely follows the launch of 21Shares’ parent company, 21.co, along with its $25M funding round. Additionally, the company recently launched its Crypto Winter Suite of products, including the Bitcoin Core ETP, S&P Risk Controlled Bitcoin and Ethereum ETPs, and Short and Core Ethereum ETPs. Earlier this year, 21Shares published the sixth issue of its State of Crypto Report, which explored current trends in the crypto industry and how investors are successfully optimizing their crypto portfolios.
21.co is the world’s leader in providing access to crypto through simple and easy to use products. 21.co is the parent company of 21Shares, the world’s largest issuer of cryptocurrency exchange traded products (ETPs) – which is powered by Onyx, a proprietary technology platform used to issue and operate cryptocurrency ETPs for 21Shares and third parties – in addition to Amun, a token provider focused on making the DeFi world more accessible. The company was founded in 2018 by Hany Rashwan and Ophelia Snyder. 21.co is registered in Zug, Switzerland with offices in Zurich and New York. For more information, please visit 21.co.