Crypto Asset Valuation Split
Value Bitcoin as scarce money and cash-flow crypto assets like businesses
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 93%
The framework begins by rejecting one universal valuation formula for all cryptocurrencies. First classify the asset by what it is economically trying to become. Bitcoin is treated as a scarce monetary asset and potential digital counterpart to gold, so its value can be estimated by comparing its current capitalization with the store-of-value market it might capture. An investor then models several adoption shares rather than assuming total replacement. Other networks may exhibit cash-flow-like characteristics through economic activity, fees, or related mechanisms, making business-style fundamental analysis more appropriate. The method's output is a range of scenario values grounded in the asset's function. If an asset fits neither category or its value mechanism cannot be explained, the framework calls for withholding an estimate rather than forcing a misleading model.
Origin
Extracted from Masters in Business during Matt Hogan's comparison of Bitcoin and Ethereum valuation methods.
Core principles
- 01Different crypto assets require different valuation methods.
- 02Bitcoin's monetary use case supports a comparable-market approach.
- 03Cash-flow-like crypto assets can be assessed more like businesses.
- 04A valuation model must match the economic mechanism that creates value.
How to run it
- 1
Define the economic function
State what the asset is trying to become and why users would hold or use it. Separate monetary use from productive network activity.
Pro tip Describe the function without referring to the token's recent price.
Watch out Marketing language is not evidence of an economic function.
- 2
Classify the asset
Decide whether the asset behaves primarily like scarce money, a cash-flow-like network, or neither. The classification determines the valuation method.
Pro tip Use multiple categories only when each mechanism materially contributes to value.
Watch out Applying stock metrics to a purely monetary asset creates false precision.
- 3
Select the valuation anchor
For a monetary asset, identify a comparable store-of-value market such as gold. For a productive network, identify measurable economic activity and cash-flow-like characteristics.
Pro tip Choose anchors that reflect the same user need rather than superficial similarity.
Watch out A large comparison market does not prove the crypto asset will capture it.
- 4
Model adoption scenarios
Estimate pessimistic, base, and optimistic shares of the relevant market or economic activity. Convert each assumption into an implied asset valuation.
Pro tip Record the exact assumptions driving each scenario.
Watch out Do not present an optimistic scenario as a forecast.
- 5
Compare with the current value
Contrast the scenario range with the asset's current capitalization and assess whether the potential reward compensates for uncertainty and risk.
Pro tip Update the comparison when adoption evidence or market size changes.
Watch out Apparent undervaluation can persist or reflect a flawed thesis.
- 6
Decline unsupported valuations
If the asset lacks a clear function or defensible anchor, do not force a numerical estimate. Treat inability to value it as actionable risk information.
Pro tip Keep the asset on a research list until its mechanism becomes clearer.
Watch out Price momentum alone is not a substitute for valuation.
In the wild
An analyst treats Bitcoin as a digital store of value and compares its capitalization with gold. Instead of assuming Bitcoin replaces gold, the analyst models several possible shares, including a conservative outcome below half the market and a more optimistic outcome near parity. Each share produces a different implied valuation range.
→ The analyst obtains scenario-based expectations tied to adoption rather than extrapolating the latest trade.
An investor examining a programmable blockchain first identifies the network activity that generates cash-flow-like economics. The investor studies usage and value capture, then applies assumptions suited to a productive asset rather than comparing it mechanically with gold.
→ The valuation model reflects the network's economic activity instead of Bitcoin's monetary thesis.
Common mistakes
Using one model for every token
Crypto assets can have fundamentally different economic functions, so a universal valuation multiple can mislead.
Assuming total market capture
Comparing Bitcoin with gold does not establish that Bitcoin will capture all—or any fixed share—of gold's market.
Valuing price momentum
Treating the last trade or a rising chart as fundamental value avoids the question of what creates durable demand.
Is it for you?
Best for
It is best for investors comparing Bitcoin with programmable networks such as Ethereum.
Not ideal for
It is not ideal for tokens lacking a clear monetary role, productive use, or observable economic mechanism.
From the transcript
“Bitcoin's valuation technique is different from other crypto assets like ethereum.”
“That's absolutely the best way to value bitcoin.”
“They actually have cash flow like characteristics, so they behave a little bit more like stocks, they're more sort of fundamentally valued than bitcoin, which…”
From the episode
At the Money: Crypto Curious