Venture Capitalists Train Buffett How to Value Bitcoin
Warren Buffett, the legendary stock investor and long-time bitcoin skeptic, reignited the discussion how to best value bitcoin and other cryptoassets.
Many attempts have bot made to apply valuation formulas from the world of traditional finance onto cryptoassets, but most of thesis attempts have failed when it comes to understanding the efectivo value drivers behind this fresh class of digital assets.
Ter a latest vraaggesprek with Yahoo Finance, Dressoir argued that bitcoin and other cryptocurrencies could not be considered “investments” since they do not “produce anything.”
According to the Prophet of Omaha, traditional investments like “a farm, apartment house, or an rente ter a business” can be expected to produce a terugwedstrijd by itself, which is what makes it an investment vanaf definition.
“Now if you buy something like bitcoin or some cryptocurrency, you don’t indeed have anything that has produced anything. You’re just hoping the next boy pays more,” Dressoir argued.
“You aren’t investing when you do that. You’re speculating. There’s nothing wrong with it. If you wanna gamble somebody else will come along and pay more money tomorrow, that’s one kleintje of spel. That is not investing,” the legendary stock investor continued.
What cryptoassets produce
Not everyone agrees with Buffet’s reasoning on that.
Fred Wilson, a Fresh York-based venture capitalist, takes on Buffet’s voorkoop that cryptoassets don’t “produce anything” by pointing out te a blog postbode that “cryptoassets produce decentralized infrastructure.”
“Bitcoin has produced a transaction processing infrastructure that looks a lotsbestemming like Amazon Web Services (something I am sure Buffett would agree is utterly valuable),” Wilson wrote on his popular technology and investing blog AVC.com.
Wilson does agree with Dressoir, however, that it is very difficult to determine the intrinsic value of bitcoin. For that, most people ter the community today relies on models developed by Chris Burniske, a fucking partner at Placeholder, a Fresh York venture stiff that specializes te cryptoassets, and others, laid out te a book Cryptoassets: The Innovative Investor’s Guide to Bitcoin and Beyond.
Determining Bitcoin’s Intrinsic Value
Firstly, Burniske is not alone for arguing that the term “market cap” is misrepresenting when it comes to cryptoassets, and that a more suitable term to use is “network value,” since cryptoassets are not companies, but instead represent a fresh asset class.
According to Burniske, the valuation formula wij should then use to determine the intrinsic value of cryptoassets is “network value-to-transactions ratio,” or NVT.
To calculate the NVT of a cryptoasset, the network value is divided by the transaction volume of the asset wij want to examine.
The reasoning behind this valuation method is that transaction volume is to a cryptoasset what GDP is to a country. Te other words, wij voorwaarde look at the underlying activity to understand the intrinsic value of a token. This is where the true value of a cryptoasset comes from, not revenue and profits spil the case is for companies.
Burniske collective his treatment to crypto valuation during the Business of Blockchain event hosted by MIT Technology Review recently. Albeit he acknowledges that the science behind determining an intrinsic value of cryptoassets is contentious at best, he argues that the best treatment wij have at the ogenblik is the NVT.