Protos: rules for giving cryptocurrencies value
Protos: rules for giving cryptocurrencies value

Protos: rules for giving cryptocurrencies value

By Fabio Lugano - 15 Jun 2018

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Protos Asset Management company has developed a model to identify the fundamentals of cryptocurrencies value.

Protos: rules for giving cryptocurrencies value. Leggi l’articolo in Italiano

What is the value of a cryptocurrency, beyond the changing and sometimes contradictory indications of the market?

What is the true value of Bitcoin, which fell in a few months from about 20 thousand to just over 7000 dollars?

Various academics and market operators are trying to answer these questions.

One of the most recent answers comes from Protos Asset Management, a Swiss company that tries to assess the cryptocurrencies value exclusively on the basis of data.

According to Protos, based on techniques that have also ensured the success of Warren Buffett, it is possible to develop an evaluation that compares the market value of a virtual asset with the intrinsic value of the assets themselves, obtaining indications ranging from “Strong buy”, for cryptocurrencies that appear underestimated, to “Strong sell” for those that are excessively appreciated by the market.

The valuation of the intrinsic value takes place through a set of relevant critical factors, from which the basis of the overall valuation derives. It differs significantly from those normally used in the valuation of shares on the stock exchange.

Let’s see, in summary, how the value can be defined according to:

  • how much turnover the network as a whole has, at a certain price;
  • how much innovation, always in relation to the price, has the network of a cryptocurrency;
  • how many users does a network have in relation to the price;
  • how much news a network can generate in relation to the price, an indicator of how effective its information is in relation to the value of the network itself.

On the basis of these four critical success factors, Protos has developed four fundamental indices:

  • NVT Network Value to Transaction, i.e. the rotation of the value of the network, indicator of the speculative fraction of the same value that is transferred through the exchanges;
  • NVD Network Values to Developer Output, which measures the ratio between the value and the number of problems or bugs on Github solved by the technical team;
  • NVU Network Value to Users, which are defined as those who bought the token and did not resell it on the market or consumed it, thus obtaining an indicator of who considers it a reserve of value;
  • NVN Network Value to News, where the ratio is between value and news that have had an impact on the price, the latter being, therefore, an indicator of the quality of communication.

With these four main indicators, Protos believes it is possible to assess the over or under-valuation of a cryptocurrency, thus allowing to give indications on which are the best purchases on the market, because more likely they will be subject to revaluation.

Whether this method is right or wrong will be decided by the market in the medium term.

Fabio Lugano

Graduated with honors from Bocconi University, Fabio is a consultant for companies and wounded shareholders of the Banche Venete. He is also the author of "Scenari Economici", and lecturer and analyst of cryptocurrencies since 2016.

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