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Understanding Value: How to Value Crypto Investments

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Sir John Templeton, the “greatest global stock picker of the century,” defied trends and unearthed hidden gems. He didn’t rely on hunches but on a mathematical eye for undervalued assets. Remember buying a prime property after a fire for a fraction of its rebuilding cost? That’s the essence of Templeton’s strategy.


The good news? Today’s crypto market brims with such opportunities. Here’s why: most investors don’t view cryptos as companies with tradable “stocks.” This creates a golden chance for those who do.

While emotions like FOMO (fear of missing out) and FUD (fear, uncertainty, and doubt) rule the crypto space, we base our decisions on cold, hard facts—the fundamentals. This empowers us, particularly during crypto downturns (a recurring theme). When others flee, we’re positioned to scoop up undervalued “crypto companies” at bargain-basement prices, mimicking Templeton’s Japan triumph.

The beauty? Quantitative analysis in crypto doesn’t require a math PhD. It’s about understanding key numbers and comparing companies side-by-side. In a field where “price goes up” seems to be the only metric, a little effort yields significant results.
This guide unveils three simple numbers to identify crypto companies with robust user bases and clear paths to future revenue generation. Remember, quantitative analysis is just one piece of the puzzle. We’ll delve into the other half—qualitative analysis—in another piece.

The First Metric: Why Daily Active Users Unlock Crypto Gems
Imagine buying a prime Manhattan skyscraper for pennies on the dollar after a fire—that’s the essence of Sir John Templeton’s strategy: finding undervalued assets with hidden potential through data analysis, not gut feelings. Today’s crypto market offers similar opportunities, as most investors see cryptos as volatile currencies, ignoring their underlying value. This creates a golden chance for those who understand the bigger picture.

While FOMO and FUD dominate crypto decisions, we rely on user data and fundamentals, positioning ourselves to buy undervalued “crypto companies” during downturns. Quantitative analysis in crypto, focused on key metrics, doesn’t require advanced degrees. This guide reveals three simple metrics to identify robust crypto companies, with Daily Active Users (DAU) being the most important.


Why DAUs Matter: The Network Effect
More users make a network more valuable, akin to Facebook’s growth. Most investors miss this, focusing on price and market cap. By analyzing user data, we can assess its true value.

DAU: A Powerful Tool, Not a Magic Bullet
To unlock DAU’s potential:
• Compare DAUs of similar crypto companies.
• Track DAU trends over time.
• Consider market conditions affecting user activity.
Healthy, growing DAUs indicate a strong user base and long-term potential, helping identify crypto investments with hidden value, just like Templeton did.

Second Metric: How Crypto Fees Reveal True Value
Daily Active Users (DAU) are crucial but can be inflated by giveaways, similar to a store handing out free candy. True value lies in generating income, often through transaction fees. For example, using the Ethereum network incurs “gas fees” that support the network.

Fees act as a loyalty test, distinguishing between temporary users attracted by freebies and loyal, paying customers. They provide insights into:

• Monetization: Are users paying for the service or just benefiting from giveaways?
• Long-Term Sustainability: Are financial prospects promising based on fee income?
• Reinvestment: Is the company using profits for future growth or depleting reserves?

Analyzing fees reveals if a crypto company is building a sustainable business, akin to a bakery with loyal, paying customers versus one relying on free samples. The former is likely the better long-term investment.

Third Metric: Beyond the Menu Price
Market capitalization (Market Cap) is a common metric but similar to judging a restaurant by its menu prices—it shows perceived value, not true worth. Relying heavily on price and market cap can lead to poor investment decisions.

Like choosing a used car solely by sticker price, you’d miss crucial details like mileage and engine condition. Similarly, price and market cap are useful for comparison—a high market cap might suggest an established company, while a lower one could indicate higher growth potential but more risk.

Market Cap: A Comparison Tool, Not Valuation
The market cap simply multiplies a crypto’s current price by its total coins in circulation. Use it to:
• Compare similar companies: A high market cap in a stable sector is more reassuring than in a volatile one.
• Consider growth potential: A lower market cap might signal higher growth potential but also increased risk.

Combining Metrics for Better Insight
Don’t rely solely on market cap. Combine it with metrics like Daily Active Users (DAU) and Fees for a fuller picture. High DAUs and healthy fees, alongside a reasonable market cap can indicate a strong investment.

Remember, price and market cap are starting points. Use them with other metrics to uncover hidden gems and avoid overpaying for hype.

Investor’s Takeaway
Quantitative analysis unlocks a wealth of crypto investment opportunities because few people use it. This advantage won’t last as more investors realize that cryptos function like companies and tokens like stocks. For now, mastering quantitative analysis is a secret weapon, revealing exceptional investment opportunities before others catch on. It’s a race against time, and with quantitative know-how, you can stay ahead.

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