As an investor, why is crypto so hard to value?

Re:As an investor, why is crypto so hard to value? by my50cents on Sunday December 12, 2021 @07:32AM (#29529048)

Crypto is not hard to value. Valuation is the estimation of the present value of future free cash flows. Since most crypto tokens produce negligible free cash flows relative to their market cap, they have approximately zero intrinsic value relative to their market price.

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Re:As an investor, why is crypto so hard to value? by hiq on Sunday December 12, 2021 @08:11AM (#29529336)

> Since most crypto tokens produce negligible free cash flows relative to their market cap, they have approximately zero intrinsic value relative to their market price.

What's the intrinsic value of stocks that don't distribute dividends in this model?

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Re:As an investor, why is crypto so hard to value? by my50cents on Sunday December 12, 2021 @08:25AM (#29529429)

The simple answer is that if a stock is expected to never pay any dividends, it's intrinsic value is zero.

Note that from shareholders' perspective, paying dividends is economically equivalent to share buyback, plus some tax considerations, so there are exceptions.

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Re:As an investor, why is crypto so hard to value? by hiq on Sunday December 12, 2021 @01:00PM (#29531860)

> The simple answer is that if a stock is expected to never pay any dividends, it's intrinsic value is zero.

Which is obviously wrong, right? Any company that has liquid assets (and no debt) is at least worth the selling value of these assets, even if it doesn't pay dividends. So I'm not sure your model helps here.

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Re:As an investor, why is crypto so hard to value? by csmiller on Sunday December 12, 2021 @04:00PM (#29533555)

I think in that case you would expect the company to return value to shareholders when liquidating it’s assets.

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Re:As an investor, why is crypto so hard to value? by hiq on Monday December 13, 2021 @03:34PM (#29544265)

Exactly, so it doesn't have a value of 0 for these shareholders.

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Re:As an investor, why is crypto so hard to value? by WastingMyTime89 on Monday December 13, 2021 @04:03AM (#29537969)

You don’t value the cash-flows associated with the share. A share is not an abstract financial product. It is direct ownership of a company.

You value the company and then you can divide the price by the total number of shares if you want. Apart from some rare exceptions like Amazon in its first years, a company which doesn’t generate any cash-flows is soon to be an ex-company.

Dividends muddy the water a bit but you get the general idea.

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Re:As an investor, why is crypto so hard to value? by WastingMyTime89 on Monday December 13, 2021 @03:47AM (#29537886)

> Valuation is the estimation of the present value of future free cash flows.

That’s only DCF valuation. It is not the be all and all of valuation. DCF is a way to value perpetuity. It makes sense for assets you can assimilate to a perpetuity (like a company). It makes no sense if you can’t. The easiest counter examples are raw materials and currencies.

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