Désirée Velleuer was our guest today on the Relai Bitcoin Session Podcast.
We sat down with Désirée to talk about investing in cryptoassets and how to value bitcoin.
You can watch it here:
Or listen to it here:
How to Value Bitcoin
To determine the value of bitcoin, we couldn’t rely on traditional equity valuation models because bitcoin has no cashflows. Instead, we looked at the supply and demand and currency valuation metrics.
On the supply side, inflation plays a role, which differs from token to token, as well as token velocity.
Token velocity measures how much a token is circulating, which can be viewed as additional supply, which makes a price increase more difficult.
Interestingly, bitcoin users tend to be and hold the digital currency as an investment as opposed to using it to spend, resulting in a stable and low token velocity for the digital currency. We consider that as an attractive feature of bitcoin.
On the demand side, we look the same valuation metrics as we would for a young startup, which – in a way – bitcoin is. For example, we look at the S-curve as a factor that goes into our valuation model.
Adding these factors into our model, we have derived a fair value for bitcoin of 20,000 Swiss francs for year-end 2020.
There’s Still Upside for Bitcoin
In addition to its strong fundamentals, bitcoin benefits from strong brand recognition as the first and largest cryptocurrency in the market.
“I think more people know Bitcoin than the Swiss franc.”
Having said that, there are still a lot of investors that don’t have exposure to bitcoin. Banks and pension funds, for example, are still a long way off from investing in digital assets, such as bitcoin.
However, we are seeing more and more sophisticated investors entering the cryptoasset markets now, including family offices and asset managers.
As a result of this trend, there is arguably more upside to the price of bitcoin.
The Role of Crypto in a Diversified Portfolio
Bitcoin, and crypto in general, is an exciting diversifier for a well-diversified investment portfolio due to its non-correlation with traditional assets. While there have been periods of high correlation, historically, crypto has acted as an excellent asset class for diversification.
Additionally, there is the returns aspect.
“A small addition of crypto in a diversified portfolio can add substantial returns.”
We have seen numerous studies and have conducted our own research on the effect of adding crypto on portfolio returns. The conclusion is clear: adding crypto can boost returns.
Therefore, Désirée believes that crypto should have a place in a diversified investment portfolio.