As crypto networks and protocols mature, market participants will be provided with reliable, real-time, on-chain data on cash flows, active users, user retention, value lock, trading volumes, and developers across a growing set of crypto protocols and crypto protocols. You can now understand the activities of application.
This has led to the emergence of new ways to research and invest in crypto assets by leveraging fundamental analysis (i.e., measuring the value of a stock by examining relevant economic and financial factors) . If the past is any indication of the future, we should expect the cryptocurrency market to mature in the coming years.
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Value investing and fundamental analysis: A brief history
“In the short run, the market is a voting machine. But in the long run, the market is a weighing machine.”
Benjamin Graham, the pioneer of value investing, said so. Graham's first book, Analysis of Securities, was published in his 1934 year. In the aftermath of the stock market crash and the Great Depression he was enacted the Securities Act of 1933 and he was shortly after the Securities Exchange Act of 1934 was enacted.
Graham's work helped lay the foundation for new concepts such as fundamental analysis and intrinsic value. This work planted the seeds for the market to reach a consensus on the best way to value and perform comparative analysis of stocks.
These ideas were popularized by Warren Buffett in the 1950s and '60s after Graham published his second book, The Intelligent Investor. In the 70s, 80s, and 90s, academic and corporate acceptance pushed these concepts further into mainstream consciousness as the market gained consensus around core metrics such as financial data and price-to-earnings ratios. I did.
“Reservation price.” “Dividend yield.” “Debt to equity.” “Free cash flow.” “Return on equity.” “Net margin.” All these concepts matured in this era. Along with this, investment concepts such as “economic moat” and “enduring competitive advantage” have also emerged.
Of course, none of this would have been possible without this Quality data. Without data, stocks will be traded based on speculation, narrative, and brand.
Hmm. That sounds like cryptocurrencies today.
Cryptocurrency: Speculation → Utility → Fundamentals
Just as traditional markets have come to a consensus on the best way to value stocks using data, we expect the same to happen with crypto networks and protocols.
Of course, it is important to recognize that speculation has been at the core of all innovation throughout history. Speculative capital is needed to create new industries. This was seen in the age of steel and electricity. The era of oil. Automobiles and mass production. We saw it on the railway. More recently, we have seen it with the introduction of the information and communication era.
With history as a guide, speculation ultimately leads to finding ways to make the most of productive capital. Eventually, the market will reach a consensus on the best way to use the and values New technology (and the businesses that use it).
Today we see this unfolding in the era of blockchain technology or Web3. It installs a new data layer on the Internet and introduces the concept of a shared global accounting ledger and digital property rights.
For example, below we can observe active users on the Ethereum L1 network and its superordinate L2 network.
This data could inform the generation of predictive value at the L2 vs. L1 level within the Ethereum ecosystem.
And here is Ethereum's “GDP”. This is the sum of fees generated by the most prominent protocols and applications built “on top” of L1 infrastructure.
This data can be useful for comparative analysis of alternative Layer 1 networks.
We expect a consensus to eventually form around the key KPIs and metrics that will inform the evaluation of the various sectors within Web3, similar to what we have seen in traditional finance.
As quality data providers set up tables for fundamental analysis, we can expect new products to come to market that leverage this data, such as fundamentals-based. index and new investment framework.
As fundamental analysis of crypto networks becomes better understood with new and improved data, we should expect the next wave of “smart money” to find top quality projects.
To gain an investment advantage, you need access to quality data before other companies in the market get it. This also gives regulators the tools they need to monitor the market and create smart new investor protection rules. After all, the granularity and near real-time delivery of data within crypto networks is unprecedented in the financial industry.
The future of crypto investing will be based on fundamentals.
And it all starts with high-quality on-chain data.
