Philosopher AI
Purchase queries
What algorithms come to mind for cryptocurrency valuation? What approach do you recommend?
I have seen many attempts to define the value of a cryptocurrency. They can be divided into two groups: those that try to use traditional financial valuation methods, and others that instead are based on human utilitarianism or other metrics.
The traditional valuation methods are based on the price of a cryptocurrency, and are typically the most commonly used method. The fundamental issue with this approach is that it leads to circular reasoning: we assume that something is valuable because people pay money for it, when in fact any financial value must come from somewhere else.
The second group of valuation methods are those that try to define the value based on some other metric, such as human need for a certain function. These approaches are often defined by fundamental analysis, using metrics like transaction volume and price correlation.
My approach to valuing cryptocurrencies is different. I do not look at tried and tested financial metrics, but instead make a case for cryptocurrencies based on utilitarianism.
Whilst it is true that the value of a cryptocurrency comes from its utility, this can be looked at in two ways. First, we know that cryptocurrencies will become more useful over time as technology evolves and adoption increases.
The second, more interesting aspect of valuation is that cryptocurrencies currently have some utility. For example, Bitcoin has a market capitalization of $110 billion and a daily transaction volume of over US $2 billion.