Exploring how to apply a multi-factor CAPM model to crypto-asset valuation would be interesting. As with other ratios and statistical models, like historical return periods are short, the model will be more useful in the future when the crypto-asset market matures, and we will have more information to research the relationships between token prices and different drivers.
The standard four-factor CAPM model of Carhart incorporates considerations for the potential excess return of an asset, a small-cap risk and volatility premium, book-to-market ratio (value vs growth stocks) and momentum. For known variables that could suggest future price returns, a “Crypto CAPM” template could be tested and explored. Factors could include the following, among others. Remember that this knowledge is an experiment that is basic and needs to be researched much more closely.
Liquidity factor (potentially calculated by the amount of trading, bid / ask spreads or small-cap minus large-cap returns as in CAPM)
Token exchange and storage frictions (prevalence of centralized exchange and distributed exchange protocols, ease of purchasing, the value of the wallet, etc.)
Group size/strength factor Value: low NVT versus high NVT factor ‘ FOMO ‘ factor (beware of multicollinearity w / moment).
Global political or economic uncertainty
A particular crypto asset would have a “beta” coefficient that represents the vulnerability to the different market variables predicted in the past or future. Ultimately, the multi-factor model could be used to estimate the value of the overall market, market sub-segments, or unique resources that each factor has a set of betas.
Discounted Cash Flow (DCF) Analysis
Considering that token investments do not produce cash flows or reflect equity claims on cash flows, DCF is usually not suitable. In some cases, however, it may be useful to use a variant of a DCF model: if crypto resources develop in the future to provide equity features such as planned dividends or distributions.
As applied to stake returns and master node tokens that provide other distributions to owners. There are candidates for staking tokens such as NEO and VeChain.
Approach for equivalent valuation? The financial ratios and multiples of similar firms can be used in standard stock valuation to indicate share prices for a target company. Could we extend this method to properties with cryptography?
Replace EV / EBITDA, P / E, EV / Sales and other metrics for a select list of comparable peer token projects with token-relevant metrics such as NVT (or others as they evolve in the future). Calculate comparison team median rates, apply to a token project to infer the value of the token.
The presence of strong network effects in digital assets is a challenge in applying this approach to tokens. Few rivals will thrive in the industry offering similar products at once.
Crypto-networks as small emerging economies
Key argument: for a crypto asset, the consensus protocol is like a country’s constitution, the community is like a legislature (miners are supply-side, users are demand-side), the core developers are like an executive branch that executes code once the community has accepted it, tokens are equivalent to an internal currency, and investors subscribe to the currency and invest according to the relative attractiveness
Investors are looking for sound monetary policy, good governance, low corruption (more of a “pleasant to have”), low poverty, growth, etc. for both crypto tokens and a national currency.
Perhaps one should collaborate with economists to formulate an index of “crypto macroeconomic attractiveness” or collection of metrics that could be applied to tokens based on key indicators in emerging market investment. It could include a “Gini” crypto coefficient as shown in the decentralization quantification work of Balaji Srinivasan, price stability and monetary policy ranking, democracy score, bribery and accountability index, and more.
Now that we are done learning how to value cryptocurrency, here is a glimpse of all those currencies that are cheap right now but have great potential in the future:
Let’s begin exploring the best cryptocurrencies below $1.
- QuantStamp (QSP)
QuantStamp is recognized as the first scalable safety audit protocol for making Ethereum smart contracts to track the security loopholes. Cryptocurrencies and blockchains are always afraid of hackers, as in the case of the 2016 DAO attack, where hackers stole 3.6 million ETH.
QuantStamp (QSP) provides multiple new coins to long-term shareholders monthly to Airdrop. It sounds great to get enough income from investing in QuantStamp for investors. The QuantStamp was hitting its lowest price. This occurs because of the dilemma of scalability in Ethereum, which brings it down to cost. It is therefore considered to be the best cryptocurrency under $1 and a good opportunity for investors to profit from it.
- IOTA (MIOTA)
For IOTA, Blockchain was a driving force. The IOTA Foundation, a non-profit German, managed the virtual currency of IOTA and launched its Data Marketplace in 2018 for a two-month demonstration. IOTA’s Data Marketplace is a platform that enables businesses to sell data to facilitate data sharing. In fact, this platform is blockless as all network transactions can be made free of charge, thus addressing one of the main transaction fee constraints in blockchain technology. Today, it is among the best under $1 cryptocurrencies.
- Ardor (ARDR)
Ardor (ARDR) operates the business model of the Blockchain as a Service (BAAS), and that is the key reason that many firms want to invest in it. Nonetheless, because Blockchain is a complex technology, many companies still can not crack the barrier to entry. And Ardor aims to allow companies to incorporate Blockchain in their operations. An altcoin to keep an eye on as you never know it could potentially serve millions of businesses. This cheap 2019 cryptocurrency ran a special promotion for its fans on this Valentines Day, where crypto enthusiasts were allowed to send their loved ones a new Ardor Account loaded with some money.
- Nem (XEM)
The New Economy Movement (NEM) is an intelligent asset system that enables businesses to develop their business platform. This basically offers the platform that others can use to build distributed applications (DAPPS). It’s like the app store from Apple-a product that others can build on and a coin that can deliver good returns in your portfolio of cryptography. The peer-to-peer network includes the’ Messages’ feature included in a transaction that can be used to secure communication and multi-signature transactions that protect users from hackers and protect community-held funds.
- Ravencoin (RVN)
Ravencoin was inspired by Game of Thrones, especially Westeros ‘ mythical world. Like ravens used to send truth claims from one group to another, Ravencoin (RVN) is similarly designed to carry a “fact message” to who owns which property. A coin that has extremely high growth potential, that’s why Overstock’s CEO has invested millions of dollars in it. Even for its all-new potential capital, TokenizEU chose Ravencoin network.
- Stellar Lumens (XLM)
While Stellar Lumens (XLM) falls below $1, it’s not a small-cap cryptocurrency, but it’s a decent choice to invest in 2019 if you’re looking for cheap cryptocurrency. With one of the largest market caps in existence for all cryptocurrencies, this cheap cryptocurrency still has enormous growth potential. This cryptocurrency loan works to speed up payment and reduce cross-border transaction costs. It is one of the’ leading’ cheap cryptocurrency to invest in serving a multi-trillion dollar market a year. In terms of market cap, XLM is currently the ninth-largest crypto space coin. As on February 14, 2019, its total market cap stands at US$ 1.47 billion.
- Cardano (ADA)
Another coin with a high market cap and plenty of room to grow–and credit go to its smart contract system. It also provides a framework to develop financial applications for other companies with the main focus on security. The development team constantly works to update the Daedalus Wallet to make it fully available for all types of transactions. It is a cryptocurrency that has enjoyed success below US$ 1 and is worth digging deeper into. In comparison, it actually comes under the market cap list of top 10 coins. Not only that, Cardano has consistently invested in collaborations with different governments around the world to promote the blockchain industry.
- BitTorrent (BTT)
BitTorrent is one of the cryptocurrencies that is the oldest and the most common. It circulates in more than 138 countries and has absorbed 22 per cent of the crypto world’s total upstream traffic. Every day, over 100 million users trade in bit torrent. Bit torrent (BTT) allows content creators to interact with their audience and encourage them to earn and spend digital currency without third-party involvement. A new venture will be profitable for investors and traders between Bit Torrent (BTT) and TRON (TRX).
Bit Torrent tokens will be distributed to TRX owners in the ratio of 0.11 BTT= 1 TRX, making it one of the cheap cryptocurrency 2019, according to assets.
- Pundi X (NPXS)
Pundi X (NPXS) is a transaction system that small and medium-sized merchants easily accept. It enables them to make transactions using cryptocurrencies in an easy tap to pay process. Pundi X’s main feature (NPXS) is that buyer and seller can use their current payment cryptocurrency. You can also use Pundi X to purchase cryptocurrencies, including Ethereum, Bitcoin, ERC20 tokens, etc.
The NPXS software allows users to add the new or native fiat currency to their cards. It allows users to offer physical market services related to Blockchain. Although Pundi X tokens are considered to be the cheap cryptocurrency to invest in 2019, its future is fantastic as it only has a week-long growth rate of about 150%.
- Ontology (ONT)
A Chinese company founded Onchain in 2017. Ontology (ONT) is a new player with its open blockchain project and set of rules, smart contracts, and DLTs in the crypto world. The blockchain platform of Ontology supports many other public blockchain frameworks to simplify them using their current modules for multiple applications.
The module Ontology (ONT) is used to verify identity and provide users, assets, and objects with authentication. Cryptocurrencies are fluctuating and are facing several challenges. While Ontology’s current coin price is $0.6427, considering the 2019 cheap cryptocurrency, its creators believe it will impact the 2019 benchmark.
Cryptocurrencies allow investors in a short time to earn a lot. It’s not easy to figure out which one to invest in with thousands of digital coins on the crypto market. So, it’s always easier to test the coin’s market capitalization before determining which cheap cryptocurrency to invest in 2019. Keep an eye on the coins above as they are likely to skyrocket in the future and make you wealthy someday.
Conclusions: Today and Tomorrow
Crypto markets are very new with limited data history related to the actions, returns and correlations of crypto resources. Many of today’s models are either simplistic or restricted, either intrinsically (because of difficulties in identifying and measuring variables such as Velocity and its equivalents, for example) or extrinsically (because of limited applicability to various types of tokens, such as NVT and privacy coins).
The valuation models and ratios should be more predictive and insightful in the future when the markets mature, and asset relationships and actions are more discoverable. Nevertheless, we may never have ratios and models as standardized as the P / E ratio and DCF analysis of public equities due to the very complex nature of crypto resources, which may have different features, structures, payouts, etc.
Today, an active approach to crypto-asset valuation should be grounded in a clearly articulated investment thesis and based on qualitative and simple criteria assessment. The valuation structures listed above can and should be complementary.
Key fundamental criteria to consider when analyzing crypto assets include factors related to the team, product, community, token mechanics, governance, the timing of the market and suitability of the project.
Today’s crypto-asset thinkers support various main investment principles, such as encouraging fair and equitable distribution models, avoiding rent-seeking tokens, and favoring ventures that solve problems and fit with existing infrastructure and ecosystem growth rates.
Crypto assets are an evolving alternative asset class, and the analysis of valuation mechanisms that can help investors predict bitcoin values has yet to be completed. The structures and models listed above have many drawbacks and should only be implemented today and tomorrow when useful and in company with qualitative analysis.