1/ Over the past week, the chatter around cryptoasset valuations hit an inflection point, with some investors going so far as to publicly withdraw from certain categories of early-stage investment. Here’s the crypto crib notes on what smart investors think is going on.
2/ “The strangest market." That’s how @teempai described the scenario in which seed companies are raising at $200m valuations - without the quick exit opportunity formerly available in ICOs - in this phenomenal thread:
3/ @JoeyKrug of @PanteraCapital expressed his frustration at companies that raise at a reasonable valuation only to turn around months later and raise again at 40x, pointing out that these valuations make it exceedingly difficult to make a return.
4/ Even more extraordinary was @wheatpond sharing that his firm - China’s largest blockchain-focused fund - is increasingly passing on pre-sales & early rounds due to valuation concerns. The sentiment was echoed by other investors like @spencernoon
5/ @wheatpond's comments in his PoW newsletter included an important insight: BTC's durability is due in part to the community who got in at a sufficiently low early value to weather later price volatility. Not just the presence but the stalwartness of token investors matters.
6/ Ever the elder statesmen, @fredwilson wrote a post called “The Valuation Obsession” - flagging as part of the problem some CEO's belief that higher valuations make it easier to recruit top talent (even though upside is higher when valuation is lower) avc.com/2018/06/the-va…
7/ Another early stage investor, @BrandonReeves08 pointed out a similar but different backwards incentive specific to crypto: raising more $ in order to have an easier time getting the project listed on top exchanges
8/ Given the concern of investors, why are valuations so high? Part of it is that in the era of ICOs, those who put money in on a discount could almost immediately sell their holdings to post-ICO investors. There is much to say about that - in fact deserving of another thread.
9/ Part of the wonky valuation landscape is due to the fact that crypto represents a new asset class that lacks agreed upon valuation frameworks, without which it becomes tempting to divide the world into “likely to be so massive valuation doesn’t matter” or “not.”
10/ Given that, if there has ever been a time to spend some community energy exploring valuation models, this is a good one. To that end, a good starting place comes from @AshleyLannquist who wrote this comprehensive overview of valuation frameworks: blockchainatberkeley.blog/todays-crypto-…
11/ Of course, almost all of these frameworks are subject to scrutiny by @QWQiao of @MessariCrypto, who this week published “What’s Wrong With Cryptoasset Valuation Models Today?” medium.com/@QwQiao/whats-…
12/ @Travis_Kling who recently jumped from the hedge fund world into crypto with @Ikigai_fund has done exhausted research on valuation models recently shared some of those learnings in a conversation with @Obstropolos and @crypto_bobby
12/ Other canonical valuation reads include @cburniske’s “Crypto J Curve” - which distinguishes between the “current utility value” and the “discounted expected utility value” and set the foundation for basically all subsequent valuation convos medium.com/@cburniske/the…
13/ Thanks to thinkers like @kylesamani & @jlppfeffer, meanwhile, utility token projects now have to answer “the velocity problem":
The Blockchain Token Velocity Problem coindesk.com/blockchain-tok…
Doubts about the Long-Term Viability of Utility Cryptoassets medium.com/john-pfeffer/d…
The Blockchain Token Velocity Problem coindesk.com/blockchain-tok…
Doubts about the Long-Term Viability of Utility Cryptoassets medium.com/john-pfeffer/d…
14/ In an incredibly useful crypto overview presentation, @AriDavidPaul refers to this velocity problem of utility tokens as them having a valuation framework best described as “Hot Potato" …ocurrencyinvestor.files.wordpress.com/2018/05/bt-edu…
15/ The point is that while there aren’t yet clear valuation standards, there is a ton of thinking out there. The more investors share their insights with one another, the faster we’ll get to a more nuanced understanding that will help projects and investors alike.
16/ For now, I think we’ll see a valuation retreat. @wheatpond’s insight re: community fragility when buy-in is priced too high provides validation & cause to turn down pricey projects. Most likely, smart founders take advantage & make their lower valuations look sensible.
17/ What important work on valuations does this list miss? Please share here so we can continue to build this as a resource for investors, project leaders and the crypto community at large.
18/ This thread today by @robustus is another great addition to the conversation on the psychic value of holding an asset. This is a whole different dimension to the argument that needs to be studied.
