Cryptocurrency, as an emerging asset class, has attracted numerous investors due to its decentralized and innovative nature. However, it lacks the standard valuation frameworks found in traditional markets like stocks or real estate. How can investors identify crypto assets with enduring value and avoid being misled by short-term speculation? This article systematically introduces a comprehensive valuation methodology that integrates liquidity, valuation, market activity, adoption, and on-chain data to help you rationally select and invest rationally.
1. Liquidity Analysis: The Cornerstone of Smooth Trading and Stable Value
Liquidity determines the ease of asset trading and price stability. Currencies with good liquidity experience less price volatility during trading. One key indicator of liquidity is the Amihud Liquidity Measure:
- A lower index indicates better liquidity, minimizing the impact of large transactions on prices, and favoring institutional investment;
- A higher index indicates insufficient liquidity, making prices susceptible to fluctuations in large transactions.
2. Valuation Metrics: Two Key Keys to Revealing Price Justification
Since crypto assets lack traditional earnings reports, on-chain data is essential for assessing their valuations.
Network Value to Volume Ratio (NVT Ratio)
Similar to the Price-to-Sales (P/S) ratio in stocks, this ratio reflects the ratio of market capitalization to on-chain transaction volume.
- A high value may indicate an overheated price and insufficient trading activity to support the market capitalization.
- A low value indicates a fair or undervalued price, with an active and highly useful network.
Price to Fee Ratio (P/F Ratio)
Similar to the Price-to-Earnings (P/E) ratio, this ratio measures the price paid by investors relative to the fee revenue generated by the blockchain.
- A low P/F ratio indicates high network fee revenue and well-supported asset value.
- A high P/F ratio may indicate an overvaluation and insufficient fundamentals.
3. Market Activity Indicators: Reflecting Investor Sentiment and Participation
- Exchange Total Trading Volume: Reflects the number of transactions and the amount of funds involved. High trading volume indicates strong market demand and liquidity.
- Circulating Supply: Influences asset scarcity and inflation risk. Excessive supply can weaken price momentum.
4. Adoption Metrics: Measuring Ecosystem Vitality and Network Effects
- Number of Active Addresses: Represents the number of users transacting on-chain daily. High activity indicates real usage and community support.
- Number of Holders: A widely distributed holder base indicates greater decentralization and resistance to manipulation.
5. On-Chain Activity Metrics: Reflecting Trust and Value
- Total Value Locked (TVL): Reflects the amount of assets locked in the entire blockchain ecosystem. A higher TVL indicates greater trust and maturity in adoption.
- Protocol-Specific TVL: Focuses on the locked assets of a specific DeFi protocol, demonstrating the platform’s popularity and security.
Rationally Managing Digital Asset Investments
Although cryptocurrencies are highly speculative, a comprehensive analysis of the quantitative and fundamental indicators above can help investors make more confident judgments:
- Prefer assets with good liquidity, reasonable prices, and active markets.
- Focus on real user adoption and a broad holder base to mitigate concentration risk.
- Leverage on-chain data such as TVL to gain insights into ecosystem health.
A scientific and systematic evaluation framework is a powerful tool for avoiding blindly following trends and capturing promising coins. Only in this way can one gain a firm foothold in the volatile digital currency market and achieve steady growth.
