Trying to predict the price of cryptocurrency? Should you use MVRV, inventory to flow, NVT?

Since the 2017 bull market, the fundamental value driving force of cryptocurrencies has been questioned a lot. Professional investors who are considering the allocation of digital assets want to know what the true value of the asset is. The latest report from Iconic Funds and Cryptology Asset Group, a leading European crypto asset and asset management company based on blockchain business, purpose Clarify this topic.

The basic value of each cryptocurrency depends on its unique use case, which makes it impossible to apply a single valuation method to each token. For example, Bitcoin (Bitcoin) The traditional commodity evaluation model can be used for analysis, because one of its use cases is as a hedging tool to hedge against currency depreciation. On the other hand, ether (ETH) There is no cap supply like Bitcoin.Other coins, such as MakerDAO MKR The token is a governance token designed to enhance community governance capabilities in decentralized finance or DeFi protocols.

The latest report of Iconic Funds and Cryptology proposes a method for evaluating the value of various digital assets. This research was written by Robert Richter, a researcher at the Frankfurt School Blockchain Center and Philipp Rosenbach, an Alantra Investment Bank analyst. It identified the value drivers of 19 cryptocurrencies in five clusters: financial factors, development activities, and social media dominance. Status, network usage, network size and complexity. An important finding of the report is that searching for Bitcoin online is not an important predictor of price. However, the existence of social media is the true value driver of altcoins.

Read the research report issued by Iconic Funds and Cryptology Here.

According to analysis, the value of Bitcoin seems to be mainly driven by its stock circulation ratio. Another variable that can be used as a fundamental value driver for Bitcoin is the number of valid addresses: the data shows that this number closely tracks the price until mid-2020. In other words, the increasing adoption of the largest cryptocurrency may have manipulated its price. However, it is difficult to explain Bitcoin’s recent historical highs.

For Ethereum, the number of verified smart contracts on the Ethereum blockchain is often a reliable price prediction indicator. Since the number of active users on the blockchain represents the popularity of Ethereum as a decentralized application (DApps) ecosystem, there are cases where numbers are used as an ETH evaluation tool. Surprisingly, the prices of other blockchains (such as Polkadot, Neo or EOS) that aim to create DApps are related to the price of Ether, not to the development activities of its own network.

Other tokens analyzed in the report include payment coins, such as sprint, The lumen of the star (XLM) And Litecoin (LTC). The price of these tokens depends on the trend of Bitcoin, and financial attributes such as transaction volume or speed (which are expected to drive the price of payment tokens) hardly affect the price of the asset.

In addition, the report speculates that the price changes of cryptocurrency exchange tokens are more driven by market sentiment than their use in exchanges. It seems that the only cryptocurrency that directly responds to the prices of Bitcoin and Ether is Binance Coin (BNB), and the main driving force of Huobi Token (HT) is the number of Twitter followers on the exchange. However, according to the report, the market value to realised value (MVRV) ratio proved to be the basic value driver for three-fifths of the exchange token category, indicating that the ratio is a relatively good driver for this type of crypto currency.