Is it possible to project likely future scenarios?
08 July 2022
Question by Anne
Is it possible to project likely future scenarios if investing in crypto? As can be done with investment portfolios?
Answered by Simon Peters
It is difficult to a degree to value cryptos - as they tend to be networks rather than companies so typical valuation methods like P/E ratios which are used to value stocks and markets such as the S&P 500 don’t work.
With that being said the general approach to ‘value’ cryptos is based on network effects - that is where metrics like number of users or active addresses, number of daily transactions, average transaction value for example are all increasing that tends to signal that there is more value being moved through the network and in turn the price of the individual coin or token should reflect this.