Protos Asset Management (PAM) is an industry leader in data-based asset management for cryptos. It has recently developed analysis indexes that speed up the valuation of cryptocurrencies.
Implementation Of The Use Of Data To Determine Investment Strategies In Crypto-Markets
PAM has made progress in what they consider to be crypto valuation models and published an article in Medium in April to discuss and introduce its new crypto-economic relationships based on utility, innovation, adoption and advertising of a given system.
Valuation is an investment concept popularized by Warren Buffet, CEO of Berkshire Hathaway, who implemented it using a “ratio” (reason) analysis strategy. This concept is mainly used to study the relationship between the market price and the intrinsic price of a given asset.
The price-earnings ratio is popular because it is especially useful with equities when comparing the price of an asset to the company's earnings.
The valuation concept is useful for evaluating the usefulness and price of an asset, serving as a tool for evaluating cheap purchases and expensive sales, which is the common objective of trading, and also serves to determine the entry and exit points within a defined market trend.
How Does A Valuation Model Work And Its Factors?
Proto Asset Management believes that given the unique features of the cryptomarket, it is necessary to replace or reinvent the existing ratios (ratios) that we might inherit from the traditional market, so it is necessary to start developing the appropriate ratios for crypto-assets.
PAM proposes a 4-factor model to properly analyze a cryptocurrency in the markets. All you have to do is always ask yourself the following 4 fundamental questions: How much turnover (utility) does the network have with its price? How much development (innovation) activity does the network experience with its price? How many users (adoption) does the network have with its price? And how much news (advertising) does the network generate with its price?
Crypto networks should be considered to have different properties from those of the common financial market, as they are not linked to the cash flows used for discounted cash flow analysis. Progress and development in cryptocurrencies is driven by a community of developers, investors and users, unlike the employees and customers of a traditional business organization.
With the 4 fundamental questions mentioned above, a complex set of measurable factors can be identified that are considered to be closely linked to yields in the crypto-market.
Additionally, there are 4 other factors that explain the direct impact of the attempt to find a relationship that applies to digital assets. These are:
1. On-chain transaction volume: which will allow you to measure the turnover of the network and serves as an indicator of its usefulness for transferring value.
2. Github commits: Github measures the activity of the network developer community and serves as an indicator of the ability to innovate over time.
3. Active addresses: This factor measures network adoption and serves as a proxy for potential network customers.
4. The News: You should measure the advertising that a network receives and serve as a proxy for the network's ability to create advertising.
Protos Asset Management considers that all these factors are only a limited selection of factors. The crypto-financial firm insists on social media calling for debate and discussion with researchers who may have different points of view about more or less relevant factors to understand the emerging market.
Valuation By Ratios
Considering the concepts that can be inherited from the traditional market, PAM also adapted what is perceived as the reasons or ratios that can provide more fundamental information about cryptos and their relevant markets with their respective factors:
Network Value to Transaction Volume (NVT): This ratio measures what would be the speculative fraction of the on-chain volume that is used to transfer value from one exchange to the other and the negligence of any utility other than the transfer of value.
Network Value to Developer Output (NVD): The NVD relationship is implemented after the number of code pushes, issue interactions, pull request interactions, GitHub commits, comments on commits, and number of repositories that were open sourced should be collected..
Network Value to Users (NVU): Assumes that users own a token and never use it, considering that the utility is only described by the value transfer and storage.
Network Value to News (NVN): You can never forget that news and advertising have a huge impact on prices and it is essential to consider whether recent media development supports the current value of the network. NVN identifies new investors attracted only by market advertising and includes sophisticated sentiment analysis.