What is fair value in crypto, is it a real thing, or is it just cope for broke crypto projects?
What Is Fair Value?
To make it really simple, fair value is basically saying:
"This thing is basically the same as the other thing, so it should be worth the same."
You benchmark a price of a leading asset, like Bitcoin for example, and then compare others across a wide range of metrics like cost-to-attack, developer ecosystem, transaction volume, and more.
Using the Bitcoin benchmark, you can see what the fair value is of any other crypto, regardless of what the market price may be today.
Does Fair Value Exist in the "Real World"?
Yes. Basically every industry has some kind of an objective value benchmark: real estate, automobiles, and more all have some kind of way of saying "Well this should probably be worth about that" regardless of what the list price is.
A great example of a fair value to market price discrepancy in the real world is holiday destinations. Let's take Italy vs. Croatia 🇮🇹ðŸ‡ðŸ‡·
Both the Italian and Croatian coastlines offered comparable experiences: beaches, great weather, great Mediterranean food and drink, historic architecture, and more. But Croatia, for a time, was significantly cheaper.
Why Does Fair Value Diverge from Market Price?
There could be lots of reasons like poor information or other hidden challenges.
In Croatia's case, the War of Independence wrapped up in the mid-90s, and EU membership happened in 2013. Both of these ended serious blockers to it becoming as accessible and safe of a destination as Italy. Then it essentially took a few years for the word to get out.
In crypto, this could be many things: unsubstantiated FUD, lack of confidence in the development direction of the project, regulatory challenges, lack of clear product-market fit, shown inability to onboard users and investors, and more.
But the biggest one is information.
We're so early 🤣 but that means that the world largely hasn't figured out what makes crypto-assets valuable. All they know is Bitcoin stood the test of time so far, and everything else hasn't done as well.
Now that the asset class is maturing, and regulations are getting a lot more clear, information about the massive discrepancy between the fair value and market price of many assets will start to get out.
It probably makes sense to start paying attention to fair value now, as two things can happen over time: either market price rises to meet fair value, or fair value falls to meet the market price.
Where Can I Learn More About Crypto Fair Value?
Follow @DigitalGoldTalk on X and listen in on some of the shows on various coins. Also, get key members of your favorite coins on to cover their fair value.
Do your own research too.