Is Crypto’s List Price Overvalued?
The CEO of Civic Key and well-respected crypto investor Vinny Lingham made a bold statement this week in a Venture Stories podcast. He declared that the actual value of most cryptocurrencies is likely lower than their listed prices. There may be a number of reasons that Lingham is taking this position.
First, there is a liquidity issue. This year, experts started questioning the volume of digital assets and the practices used by many trading platforms, which often entails inflating their numbers. Sylvain Ribes, a crypto investor and researcher determined, this year, that 90 percent of digital asset exchange’s volume are either inflated or faked and as a result, liquidating the digital assets on these platforms is difficult.
Ribes also assessed the slippage of exchanges by selling $50,000 worth of digital assets in a single order and concluded that a substantial drop in value inevitable when one liquidates. Lingham added that due to the lack of liquidity in the market, selling all of the assets circulating in the market is impossible. As a result, the true value of the crypto market is only a “tiny fraction” of the demonstrated price. This makes valuing cryptocurrencies very difficult.
In Lingham’s words, “Commodities have industrial demand that set a baseline value for them. Companies can choose to forward purchase them if the price drops too much, to lock in future profits and lower costs of inventory. Where does the baseline industrial demand for crypto come from?”
Fred Ehrsam, Coinbase’s co-founder, explained liquidity, stating that decentralized exchanges can enhance their liquidity in the exchange market. They can also improve the liquidity of their digital assets. To do this, it may be best to create a global pool of liquidity, similar to that of Binance, Bitfinex, and Coinbase.