How do you value a crypto currency when they are not typical stocks with earnings per share? I attempt to use various metrics to value a crypto in order to calculate the upper bound of bitcoin and dogecoin.
How’s it going everybody this is bt bush today i’m going to talk about the valuation of a cryptocurrency in particular dog coin this video is brought to you by weeble don’t forget to get your two free shares of stock just for signing up and depositing a hundred dollars right now with weeble you can actually trade dog coins so check out my referral link down in the
Video description below before i begin i have to disclose that i do own significant amounts of dog coin let me look at my robin hood account right now is at 43 and a half cents my total portfolio value right now it’s an astonishing 406 thousand dollars not much more of this it’s gonna really push this up all the way up into a million dollars so this is this is
Just crazy 600 percent gain you guys have expressed concern that i am photoshopping this or something this is not real i’m just putting in numbers anyway this is my disclosure here’s my thought process of how to value this you can either look at the market cap okay market cap of bitcoin is around 1.1 trillion dollars and then market cap right now of dog coin is
53 billion so you can easily deduce that dog coin is around 1 20th the size of bitcoin therefore if dog coin were in market value just as big as bitcoin then it would be 20 times where it is right now so if you do a little mental calculation 20x is about eight dollars so that is kind of like a ceiling i would say you know if you invest in this thing you want to
Figure out okay where is the maximum it’s gonna go it definitely will not go to 58 000 just like bitcoin because if you multiply 58 000 by the number of dog coins there is 128 billion there it essentially is a market cap of 7.5 quadrillion this is 7505 trillion trillion okay not billion trillion dollars if you look at the entire investment portfolio of the entire
World it’s 1 200 trillion dollars so definitely dog coin is never going to go there so this is a good number to kind of know that it’s never going to hit 58 it’s probably never gonna hit 5000 even so what is a realistic number what is a ceiling that dog coin could actually arrive at i put in the price over here the number of coins in circulation of course in dog
Coin it’s going to add another 5 billion every single year if you keep on adding 5 billion that same 5 billion is going to be a less and less percentage of the total number of coins in order to figure out the valuation i was like well normal stocks have a thing called p e ratio how much each share of stock has the capability of earning right for example maybe each
Share of stock earns one dollar if the price of the share is ten dollars then the p e ratio is ten but in cryptocurrencies there’s no such thing as earnings per share the cryptocurrency itself is not actually earning anything then you have to start thinking about the utility of the cryptocurrency itself for example how many times does it appear in google searches
Now here’s my little graph here it actually appears 645 million times for bitcoin 117 million times for dog coin and this is kind of like a proxy for how popular it is so if you just divide the number of search results by the total number of coins then you arrive at the number of google search results per coin then if you divide the price by this number then you
Get the price per search and i got 1 681 for bitcoin for dog coin is 453 so this tells me that okay this is like some metric that you can kind of look at sometimes when you look at p e ratio of a company you can’t actually just use just the p ratio just to value something if the normal going p e ratio is 20 for some company sometimes it’s a little low sometimes
It’s 10 sometimes it’s 30 but this depends on how popular that company is maybe in the future it’s looking really really bright so then the p e ratio might be really really high for example like tesla has a really high p e ratio uh netflix has a really high p e ratio chipotle has a really high pe ratio so um this metric that i’m trying to figure out in order to
Value a cryptocurrency it’s kind of more like a guideline it can kind of fluctuate above or below this quite significantly so just from this price per search thing it seems like bitcoin has a higher price to search ratio four times that of dog so if dog were happen to have more search results okay if the number of google search results increases by fourfold then
Maybe the dog coin price is also going to increase by fourfold so this is kind of like you know you think of this as a potential that it can increase by but i actually didn’t really like this way of evaluating things so i went on to thinking about the number of connections this is in line of thinking about network connections if you have two people using something
Then you have one connection if you have three nodes in the network you actually have three connections instead of two so then i started looking at the number of businesses that accepts bitcoin or dog coin and if you look this up i don’t know if this number is all that accurate or not but bitcoin has 6 600 businesses that accepts it dog coin has 1 300 businesses
That accepts it i don’t think this is actually a good measurement i kind of went through this calculation and stuff you can just look at it but i don’t think this is actually a good measurement because you could have big businesses or small businesses right some really huge business could have 10 000 point of sale terminals that accepts dog coin or bitcoin it’s
The number of point of sales terminals that accepts them not the number of businesses you could have you know like a dozen really really large companies that suddenly accepts dog coin and all of a sudden you know they’re accepted everywhere so the number of businesses i think is not a good metric so i’m just going to skip over this scratch paper calculation i did
Now we’re on to the number of daily active addresses when you buy into a startup they always look at daily active users right this is how popular this particular website is the more daily active users that you have the more valuation that you’re gonna get and it goes up as a square law so let’s do the same calculation over here you look up the number of daily
Active addresses on bitcoin it has 930 000 daily active addresses and roughly if you square it’s this really really huge number then you divide it by the number of coins and you get 23 000 connections per coin and then you divide the price of the bitcoin for one bitcoin divided by the number of connections so you arrive at price per connection this is how much
You’re gonna get paid for every connection that you have so if you have one additional person that comes in that uses bitcoin it’s gonna have a whole bunch of connections to all the other people that is already using it right so this kind of makes sense the more people that’s using it the more utility that it has my calculation here values is at three dollars per
Connection if you count up every single connection there is between every single daily active user it’s not like every single person is gonna pay everyone or all right but you have the possibility of paying someone else because if they’re a daily active user you know maybe you can pay them if every single person uses bitcoin then you know it’s a universal thing
You can go anywhere and you can pay anyone so it becomes highly highly usable so the market is actually valuing every single possible connection here at three dollars per connection this is my pseudo price earnings ratio so three dollars all right let’s just have this in mind and then you do the same thing with dog coin 129 billion coins out there uh market cap of
53 billion but the daily active addresses is actually much lower here at uh 79 000 roughly 10x or 12x lower and then you do this network effect thing it’s roughly square really it’s n times n minus one uh which is square right and then you divide that by two the connections per coin because the number of coins is so huge then you got .02 connections per coin but
If you work out the math you get 17 per connection now it’s a little high if the market values per connection as much as bitcoin it’s supposed to drop by 5x but the market always has this funny way of trying to anticipate what is going to happen next so it might think that in the future there’s suddenly going to be a lot more active users that’s why if the daily
Active users on the next line here suddenly jumps up to the same level as bitcoin at 930 000 active addresses every single day then suddenly your price per connection is going to be 0.12 or 12 cents per connection so then if you go back and say well if the valuation of price per connection is the same as bitcoin let’s say things level off everyone get used to it
And values dog coin at three dollars per connection then this represents a 20x increase from the current pricing the current pricing 43 cents right 20 x of this is around 8 so i think this is probably the low end if you look at only market capitalization multiples the current dog coin price should be 20x if you look at daily active addresses it’s essentially
The same calculation but you’re thinking of it in a different way if the market cap increases from 53 billion to 1 trillion naturally you can’t decouple the number of daily active users right because if the market cap goes up you know most likely the daily active addresses also goes up so this is kind of interlocked you can either look at it as market cap going
Up 20 fold or the daily active addresses going up 20 fold if you guys are interested in buying your own.com check out my weeble referral link down in the video description below and you get your two free shares of stock for depositing a hundred dollars you can deposit that 100 not do anything and you’ll still get that two free shares again this is not financial
Advice don’t go on just because of this video you’re going oh my gosh it’s going to be worth eight dollars i’m gonna make 20x on whatever all yolo let me put all my money in don’t do this don’t forget give me a like on this video and subscribe for more thanks for watching you
Transcribed from video
Valuation of Bitcoin and Dogecoin By BeatTheBush
