One of the most wild valuation models for cryptocurrencies is the Store-of-Value thesis. I do believe that this model could be applied in various scenarios and applications. However, whoever presented this “as is” to be applied to Bitcoin is ludicrous.
The thesis is, in essence, a theory in itself. Of course, the conceptual line of thinking for coming up with a store of value valuation for digital assets makes sense. It makes sense that monetary scholars and investment analysts would want to formulate an equation to present “store of value” valuations for institutions and investors of digital assets.
The “as is” store-of-value thesis methodology indicates how a digital asset’s value is a function of its ability to act as a store of monetary value for its users and investors. Based on this theory, a digital asset becomes a store of value if it is immune to theft, have realistically low inflation, and a low cost of conversion.
Store of Value (SOV) Thesis
Potential Total Store of Value / Number of Tokens Outstanding = Potential Price per Token
The above equation is rather straightforward; and even makes sense.
The problem with this logic is in the variable inputs. It is overly simplistic and flawed. Let me explain my reasoning and my line of thinking.
Many Bitcoin pioneers, from Nick Szabo, Hal Finney, Andreas Antonopoulos, Paul Tudor Jones and MicroStrategy's Michael Saylor have all compared Bitcoin to gold in some context of debate. These narratives are what has helped shape the Store-of-Value (SOV) Thesis methodology as well as the sales pitch of Bitcoin being a store of value like gold.
The flawed logic stems from the “potential total store of value” required input. It is an equation, therefore, you “could” input any variable that meets your criteria for your digital assets potential store of value. However, as applied to the cryptocurrency space, more specifically applied to Bitcoin, investors and analysts input the total global market cap of Gold to reach their Bitcoin valuation.
This makes zero sense as a useful valuation. If I used this valuation, on the presented form, for any asset class, let alone an emerging asset class, I most likely would have set my potential investment return as unrealistic.
Might I add, that even if BTC hits or exceeds the market cap of gold, it has no correlation to the actual Store of Value of gold or its market cap.
To me this seems like a well funded sales pitch formulated by institutions to sucker financial institutions and retail investors into buying a “store of value” asset. To me it is specious; having a false look of truth or genuineness, misleadingly attractive. It would make more sense using this formula to find the potential store of value for an alternative smaller cap token, ie Ethereum, and inputting the potential store of value variable as the Bitcoin’s current market cap. This way you are least comparing apples to apples, oranges to oranges.
With that said, my beliefs of the usefulness of the presented store of value thesis of certain digital assets doesn’t negate the fact that investors may want to attempt to find a digital assets USD$ valuation based on its store of value. But how can we make it relevant in terms of correlation and application.
I am going to present an example on how we could use the Store of Value (SOV) Thesis model in determining the USD$ valuation for iEthereum.