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1/ What is the value of a token to its investors?
2/ It ranges from being bitcoin maximalists saying crypto is undervalued to the rest saying it's a huge bubble.
3/ Everyone is looking to the sky. It's a currency, no it's an equity, no it's an alternative asset, no it's superman!! But I digress.
4/ I would argue that crypto tokens are an Oiled Pig. Yes, you heard right, this is the Oiled Pig hypothesis about crypto. OP for short.
5/ What is oil and pig in the financial markets? They are both commodities in the financial markets.
6/ They "grow" out from both from free and paid resources. Oil and pig use a combination of USD and "free" resources like sun and time.
7/ So that is the supply side, but what about the demand side? People convert fiat like USD to the commodity for a given use case.
8/ The use cases in the case are "to eat" "to move a car" "to power electricity"
9/ In bitcoin's case, you have the miners as the farmers, the demand from users for gold, and bitcoin as the pig or oil, take your pick.
10/ So miners use GPUs and ASIC to secure the network for the users to trust. Effectively providing a farming function.
11/ The users have a use case "store of value" which is a story, just like how gold, USD is a story.
12/ One would argue that the story is fragile and can easily burst and other things are backable by mens with guns.
12/ I would argue that the entire world of humans is the history of stories. Religion, gold, clam shells as currencies, gold, and democracy
13/ All of these are concepts believed by the few and through the Minority Rule by Taleb. The fanatic minority rises to become dominant.
14/ For the concept of stories read Sapiens. For the concept of Minority rule please read @nntaleb 's article medium.com/incerto/the-mo…
15/ Now back to the original conversation. Demand for security and "store of value" and now bitcoin is a commodity like pork bellys.
16/ Yes, pork bellys. Oink oink. In fact the CFTC in the USA already labeled bitcoin and digital currencies as a commodity in late 2015.
17/ So, this is not something that is going to happen, it already happened, and many countries (India, Japan, USA) have woken up already.
18/ To further extend this, you are betting on a commodity's future, which is the equivalent of betting on pork belly's future.
19/ So, how does the conversation go with your mom, "So mom, I'm now a crypto investor! Which is the equivalent of investing in pork." jk
20/ So, what is the value of a commodity's future? You could argue that it's the Total Economic Value of the commodity.
21/ There are equivalent analogies in ecommerce. These virtual economies are typically valued at 1x or 2x Gross Merchandise Value.
22/ Why is that? Because it's a proxy of the economic demand exchanging USD to the economic value of the commodity.
23/ So, when you're betting on bitcoin, you're betting on the Gross Economic Value of the economy in the future.
24/ Then if that's the GMV, well what is the P/E ratio? The obvious extension is P/S which is Price to Sales ratio.
25/ The Price to Sales ratio is something used in early technology companies because they simply do not have profits until much later.
26/ This is from @cburniske 's talk, where the argument is that price is a function of the # of transactions in the network.
27/ The obvious extension of this is, how is the transaction different from trading volume. Or what is the NET demand from consumers?
28/ This is an open question right now because you simply cannot separate it out. You could probably run statistics on it to proxy it.
29/ However this is also confusing because the NET value of ethereum is based on its use case as the "investment bank" of cyrpto.
30/ How does this framework apply to everything else? "Use case" for demand, farming to create supply, and "oiled pig" as the commodity?
31/ Golem $gnt $rlc will bring "commodity" GPU and CPU to the market, which has a "use case" and a demand.
32/ With the investment bank of ether. You have the demand similar to kickstarter for the currency and then the commodity is the ICOs.
33/ You could argue that investing in Ether is betting on the total economic value of all the tokens built on top of ether.
34/ This holds true for the upcoming ICO mania for $neo as well in China which largely has been underdeveloped relative to the west.
35/ So, now the different given that you're betting on the Total Economic Value different use cases will be valued differently.
36/ Omisgo $omg will be valued on payment transaction volume. Paypal's quarterly payment volume is 106.44B and it's valued at 70B.
37/ Ethereum and $neo's proxies are the demand of alternative private assets in the world. In 2016, VC deployed 69B.
38/ $meme Rare pepe's proxy is the total amount of demand for collectibles across the world. Estimates range from 7B to 200B annually.
39/ So, why is this different. A lot of people rip on it saying that you don't have economic rights to the profits nor shareholder rights.
40/ That's exactly correct because it's not an equity. It's a commodity. You're investing in a private oil discovery company or a farm.
41/ Whatever makes you feel better. Do you want to be a crypto cowboy or a pig farmer?
41/ "Life is a box of chocolates, you never know what it's going to give you. Whether it's a chocolate covered pig or an oiled pig."
42/ Other people rail on cryptos saying it's not backed by government, doesn't have men with guns, but does that matter in this case?
43/ The currency analogy is only applied as a virtual currency as a bridge to a commodity. It's not a government currency and never will be.
44/ So, right now you have the Total Economic Value as GMV, Price divided by # of transactions as P/S, and P/E unknown right now.
45/ You can further argue that there are use cases putting a floor price for any given currency.
46/ You could argue that the floor price is a function of the demand of that use case.
47/ Meaning a lot of people think the floor price of a crypto is zero and that is not the case given the utility value of the commodity.
48/ "Medium of exchange" $dash $ltc "Investment bank" $neo $eth "Store of Value" $btc $bch are some of the simpler use cases.
49/ In conclusion, I argue that there is a floor to the price that's not zero, there is economic function "Total Economic Value"
50/ And that the basic demand comes from the demand of an "Oiled pig" in other words the demand for a commodity. Any comments?
51/ One comment from @BrianYormak is "tokens don't provide ownership" how do you extract value?
52/ The commodity value is enforced by the token. Meaning you can only access the utility of ether, which is buying ICOs by buying ether.
53/ You can only access Golem $gnt CPUs by buying the token. You can only have secured distributed store of value by accessing the token.
54/ So, a number of tokens is the utility value of what it does either through smart contracts or its use case.
55/ You're only able to access the utility value of the token buy converting fiat $usd to the oiled pig, or whatever commodity you want.
56/ So imagine you have HTTP as a protocol. Would you want to convert your fiat into http tokens to access the internet for work?
57/ Let's further assume that it's an free mium economy where vast majority of people are free and the premium subsidize the rest.
57/ Even in those cases, you would have lots of whale users of the currency providing demand for the protocol keeping the token value up.
58/ So the thought experiment is: what if the internet operated was a token. Would you pay? Before you answer that you already are.
58/ You pay Tmobile, AT&T, Facebook for its data for access to the collective network of use case.
59/ So the thought experiment what is http was a token isn't that difficult to make the conceptual leap to other tokens.
60/ You access the token or the utility of the commodity by converting your fiat $usd to the commmodity.
