The project generates income in the form of ethers for profits generated by asset management and fees. Part of this fee is used by the project itself for the day's business. The rest goes to the tokenholder. How do I rate Altcoins?
We see that different oldcoins ultimately lead to different valuation models, but we can use many tools from the professional stock analysis business. Lastly, to evaluate an Altcoin, two steps are taken: you estimate the size of the market and how this market size will express itself as profit per single token.
The market size can be
- Top-Down or
- Bottom-up .In the former case, we can go back to Storj. In order to estimate market size, one would start by considering the size of the actual market. One would therefore estimate how the need for cloud solutions is etc. Secondly, one would consider what part of this market Storj could take over.
- Of course, the assessment of a market size can be a challenge. In the Storj case, one could look at data from companies such as Dropbox to get an idea about the size of the market. The next thing to consider is how much market share Storj could win.
For an example of the bottom-up approach, we look at
SingularDTV , a project of what $ 7 million 5 million at its ICO last year. The project team itself has presented an estimate of the profit; so they have assumed that a documentation would lead to 200,000 paid views, with each one costing 2, 60 USD.
This is a classic bottom-up approach: the individual components are evaluated and on the basis the entire company is evaluated. Once market size and profits have been estimated, investors can use frameworks such as the dividend growth model or the relative valuation model. The former provides a value based on projected profits and dividends, the latter comparing the Altcoin project with existing companies, the value of which is well known. For example, Iconomi generates profit in three ways: it is a crypto index fund with management fees, a crypto-hex fund with management and performance fees, and a fund management platform with usage fees. Each of these paths must be considered separately. Difficulties in Assessment Since the history of cryptoscripts is very short, there are some difficulties that investors need to master when assessing Altcoin projects.
Firstly, the average life span of the projects in the crypt ecosystem is rather short, which is not made easier by the removal of the majority of the old coins in the ICO.
Secondly, the success rate of most crypto projects is not exactly high. This makes the estimation of cash flows difficult. Models like the dividend growth model assume that there would be dividends forever. However, if the project has an extremely short life span, you can no longer rely on this model alone.
Thirdly, there are no risk-free exchange rates in the crypt markets. If, for example, Bitcoin has invested in a project and the Toko purchased Tokens is back in Bitcoin, it can be that the BTC course is now quite different. Fourthly, projects in the Altcoin world often depend on each other, which entails a risk dependency of different projects. A project based on Ethereum will also depend on Ethereum.
So it remains that even with different models the investment in an ICO remains a risk. Nevertheless, the money can be put to good use with a good planning.
English original version of Sid Kalla via CoinDesk