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Valuing Cryptocurrencies and Blockchain Applications

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Valuing Cryptocurrencies and Blockchain Applications

Introduction

This article was posted on Wednesday, 15:43, UTC.

Arguably the most interesting financial trend of 2017 is the spreading of cryptocurrencies, especially in the Ethereum ecosystem. With the ICO boom of this year, a lot of different business models have been connected to tokens or blockchains of their own. This brings up several questions in the mind value-conscious investors, as given the special properties of these coins, and especially considering the various distribution and usage schemes of the tokens, valuing them is tricky, to say the least.

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Whether or not we are in a bubble currently is a layered question, as we are definitely in a huge speculative wave that will end badly for several coins, but the segment is in the early phase of adoption, and the market as a whole will likely multiply in the coming years.

As I concluded in my comparison with the Dot-Com bubble, selective investing in the ICO-boom is vital for long-term investors. To make things more complicated, traditional valuation models generally fail with cryptocurrencies, because of the hybrid stock-commodity properties of them and the novelty of the technology, coupled with the questions regarding the future usage patterns.

Is it possible to set up a framework to analyze all the different business models and value the connected coins? Or is it possible to, at least, determine hard guidelines to follow when selecting the coins to hold or forget? I will answer that question below and in the coming second part of the article.

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Mate Cser

Mate Cser

Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.

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