NEW YORK, November 28, 2023 /CNW/ — CFA Institute, the global association of investment professionals, has published a new guide to evaluating cryptoassets.
Developed by the CFA Institute Center for Research and Policythe guide aims to provide investment professionals with the most relevant valuation models and tools to support the analysis of crypto-assets, in connection with smart contract platforms, decentralized appsAnd bitcoin.
The guide contributes to the development, over time, of a framework for valuing cryptoassets. The question of valuation has become a crucial topic given the growth of cryptoassets over the past decade, currently estimated at more than 1 trillion dollars in market capitalization.1 At the same time, the crypto-asset market has experienced significant dislocation and price volatility, making an analysis of valuation factors imperative for any investor or investment professional investing, or considering investing in crypto -assets.
The valuation models presented in the guide include fundamental valuation approaches such as discounted cash flow analysis and relative valuation approaches adapted from traditional finance where applicable, as well as newer crypto-specific models. assets.
The models were informed by interviews with industry professionals and a review of current literature. Given the multitude of assessment approaches available, many of which lack testing or rigor, only models currently in use or considered relevant by practitioners are included in the guide.
The primary aim of the CFA Institute is to ensure that investment professionals and the wider industry are informed about current valuation methods and the debate around their advantages and disadvantages. The publication is part of a proactive effort to spark a broader debate on the value proposition of cryptoassets.
Rhodri PreeceCFA, Senior Research Director, CFA Institutecomments:
“This guide provides a framework for investment professionals to undertake an in-depth analysis of cryptoasset valuation drivers, including fundamental characteristics such as cash flows, growth rates and tokenomics. Current valuation models have their limitations, and the lack of historical data makes statistically robust valuations of cryptoassets difficult. No single assessment model or measure should be used in isolation.
“After Graham and Dodd published the classic Security Analysis in 1934, it took decades for an established investment valuation framework to emerge for stocks. Most cryptoassets are less than ten years old; As such, we should not be surprised that opinions on their valuation and legitimacy in investment portfolios vary widely. Only through critique and debate can evaluation models develop and converge toward consensus over time. This cryptoasset valuation guide can shed light on these important conversations and market developments. »
Valorization of smart contract platformssuch as Ethereumcan be approached from two angles: the platform is considered either as a network or as a treasury asset.
As a network, a qualitative framework based on on-chain data can be used to evaluate these platforms on a relative valuation basis. Additionally, Metcalfe’s Law, which values a network based on the square of its number of users, can be used to value the network relative to its market capitalization.
As cash flow assets, valuation involves the use of the Discounted Cash Flow (DCF) model. The DCF model considers transaction fees collected by these platforms as cash flows.
Valuation of decentralized apps – such as decentralized exchanges – can be carried out either using a relative valuation approach or using an intrinsic value approach using the DCF model.
Metrics such as price-to-sales, price-to-fee, and market cap-to-net assets ratios can be used to assess – on a relative basis – decentralized applications within the same sector or compare them with their traditional financial counterparts.
The DCF model considers the protocol revenue collected by a decentralized as a cash flow, allowing the calculation of intrinsic value based on growth and discount rate assumptions.
There is no single assessment model that encompasses all characteristics of bitcoin. The guide includes four models to promote bitcoin: total addressable market, stock-flow, Metcalfe the law and model of the cost of production. Each model is derived from underlying characteristics and takes different views on whether bitcoin represents a store of value or a means of exchange. By basing each model on only one of the bitcoinThe fundamentals of society lead to limits.
With the publication of this guide, the CFA Institute Research and Policy Center does not support a particular vision of crypto-assets but rather seeks to shed light on the debate on valuation. The conclusions and approaches described in the guide do not constitute an endorsement, validation or rejection of crypto-assets.
To access the complete guide Valuation of cryptoassets: a guide for investment professionalsvisit here.
To access all Research and Policy Center content, visit: http://rpc.cfainstitute.org
Notes to editors
1See CoinGecko, “Global Cryptocurrency Market cap charts.” www.coingecko.com/en/global-charts.
For further comments or information, contact PR@cfainstitute.org.
About the CFA Institute Research and Policy Center
The CFA Institute Research and Policy Center is a force of positive influence in the global investment industry, transforming research insights into actions that strengthen markets, advance ethics and improve investor outcomes for profit ultimate of society. It brings together the expertise of the CFA Institute and a diverse, interdisciplinary community of subject matter experts working collaboratively to solve complex problems. It draws on practitioner perspectives and the unifying power, impartiality and credibility of the CFA Institute, whose mission is to lead the investment profession globally. Visit the Center for Research and Policy at http://rpc.cfainstitute.org
About the CFA Institute
The CFA Institute is the global association of investment professionals that sets the standard for excellence and professional credentials. The organization is a champion of ethical behavior in investment markets and a respected source of knowledge in the global financial community. Our goal is to create an environment where investors’ interests come first, where markets function optimally and economies grow. There are nearly 200,000 CFA designation holders worldwide, spread across 160 markets. The CFA Institute has ten offices worldwide and 160 local companies. For more information, visit www.cfainstitute.org or follow us on LinkedIn and X to @CFAInstitute.
SOURCE CFA Institute
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