1.
Thinking about
Cryptovaluation
Thiyagarajan M (Rajan), twitter.com/mtrajan
October 2017

2.
Why should you care about blockchain
now ?

3.
$100 in 2009 in bitcoin will be $500 million in 2017
5-6X
7% of 1 cent (1/100 $) in 2009 to $5000 on Oct 15 2017
Fastest growth of anything known to humans
As 20 Oct 2017

4.
Google Search Trends - Bitcoin
Bitcoin Rises
from
$30 to $230Gawker Article
About Silk Road
$10 to $30
Passes $1000
first time
All time at $5000
China bans
ICO exchanges
https://trends.google.com/trends/explore?date=2009-01-01%202017-10-15&q=bitcoin

5.
Ethereum is the new Java
$150b $30b
All cryptocurrency
Ethereum
All
India Internet
Startups
$60b
All India B2B
Software Startups
Startups
$8b
In 10 yrs In 10 yrs In 4 yrs In 10 yrs

6.
In 3rd Stage, hitting escape velocity
Prototype
Stage
Sin Enterprise
(Gambling, Black
Markets)
Legitimate
Enterprise
The Evolution of the Bitcoin Economy: Extracting and Analyzing the Network of Payment Relationships -
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2808762

7.
Bhajan, Gita & Veda level of thinking
(Metaphor, Mental Model, First Principle)

8.
Understanding - Bhajan, Gita & Veda Level
‘BHAJAN’ LEVEL
‘GITA’ LEVEL
‘VEDA’ LEVEL
‘Repeatable
Metaphors’
‘First Principle
Thinking’
‘Simple Formula/
Mental Models’
F= ma

9.
Level of understanding per user type
Tech
Legal
Business
Home User Miner Trader/Investor Entrepreneur Engineer
F= maF= ma

10.
Crypto Assets
There are about 800 crypto assets so far and new ones coming every
month

11.
Should bitcoin be valued like $ or gold or other other
commodity ?
If bitcoin does not serve the payment use case as anticipated, why is it trading at
$6000 ?

12.
Should an ICO token be valued like IPO stock or
startup angel investment ?

13.
Bitcoin like money, ICO like IPO is only a metaphor
“Never confuse brains with a bull market” - Warren Buffett
“All models are wrong, some are useful but some dangerous ” - NN
Taleb
“It ain't what you don't know that gets you into trouble. It's what you
know for sure that just ain't so.” - Mark Twain

14.
Popular mental models break down
F= ma
“Never forget the six-foot tall man who drowned crossing the stream that was five feet deep on
average.”- Charlie Munger
Modern Portfolio Theory (Standard Deviation, Sharpe Ratio, Correlation) have
several limitation already

15.
Many mental models are creaky
F= ma
Source - Howard Marks, Oaktree Capital
Volatility is not risk

16.
What is value ?
Use Value, Exchange Value, Symbol Value, Store Value
Marx Talks
about

17.
Value arises from imagination of future
Fear and Hunger

18.
Money is story with highest belief coefficient
that help in survival against both fear and hunger in the future

19.
Belief/trust on Nation state as custodian of the money
story is broken
Alternates ? Gold, Distributed Consensus ?

20.
“Bitcoin will be a store of value when everyone
believes it is. The price is the current probability.
Fundamental analysis is impossible. “
@naval

21.
What is valuation ?

22.
Estimating / forecasting the future

23.
”We have two classes of forecasters: Those
who don’t know – and those who don’t know
they don’t know. ” - Kenneth Galbraith

24.
Startup valuations are 80% story, 20% data
Startrek Journey

25.
Public company valuations are 20% story, 80% data
Everest

26.
Innovation Accounting tracks journey of a startup to
well functioning company
Uncertain & Non repeatable Value
Probability distribution Unknown
Certain & Repeated Value
Probability distribution Known
Idea/Startup Large Company
Takes 7-11 year journey
Pivots
P/M fit
Power law, 1 in 10,000 succeed

27.
Valuation
Intrinsic Valuation
Relative Valuation
Early
Startup Growth
Startup
Large
Company
Value using DCF
(With adjusted rate of return)
Value as ‘Options’ Value like DCF,
(replaceCashflow with
Growth rate)
Use Comparables
Uncertainty Risk
DCF - Discounted Cash Flow
Source - Aswath Damodaran

28.
About Price (aka Relative Valuation)
“Can’t estimate or predict the outcome of the collective based on
individual action, markets are emergent” - NN Taleb
“Markets can remain irrational longer than you can remain solvent”
- John Maynard Keynes

29.
Relative Valuation is arbitrage or pyramid scheme ?
Idea/Startup
Public Company
7-11 years
P/M fit
Angel Investors Venture Investors
PE, Hedge Funds & Public
market Traders
Crypto
Token
ICO

30.
ICOs possibly best treated like angel investments

31.
Error in your mental model is my opportunity - Value investing
Value is different from Price, Picking mispriced, Invest out of cycle

32.
Arriving at an intrinsic value still need lot of
assumptions
For a given supply & velocity of token, what is the GDP (measured in $) of the use
case need to be supported
F= ma

33.
MV = PQ
F= ma
M = size of the asset base, V = velocity of the asset , P = price of the digital resource being
provisioned, Q = quantity of the digital resource being provisioned

34.
INET Valuation, Example from Chris Burniske
https://docs.google.com/spreadsheets/d/1ng4vv3TUE0DoB12diyc8nRfZuAN13k3aR
R30gmuKM2Y/edit#gid=1912132017
F= ma

35.
New Markets in early stage, must watch out for
Speculation of Crowds , Bubbles, Ponzi Scheme & Scams, Cornering , Pumping &
Dumping.

36.
Appendix