The Digital Assets Newsletter: Week 1
- ateekberg
- Jan 18, 2022
- 6 min read
Quote of the Week
"Our money is destined to become digital"
- Michael Saylor
Too Long Didn't Read Summary:
What are DAOs and how can they change the world?:
Cryptocurrencies and blockchain technologies has allowed for the flourishing of various innovations. One that has come to the forefront of this space are Decentralised Autonomous Organisations (DAOs). These block-chained based organisations have shown to have a number of incredibly exciting and potentially disruptive applications to various areas of our society. Read more below!
Concept of the Week: The MVRV Ratio
What is really the "fair value" of a cryptocurrency? Well, although many people argue that cryptocurrencies have no real cash flows(which in itself is not necessarily true) and thus can´t be discounted to a present value, there are still a lot of valuable metrics and tools to use in this regard.
One of these tools, specifically designed to grasp the "fair value" of a cryptocurrency, is the ratio called MVRV-ratio. This can be used to understand how undervalued or overvalued a cryptocurrency such as Bitcoin really is, which also could be valuable for understanding price movements. Read more below!
Investor Joe Update
Find out what Investor Joe has decided to do this week and why below!
Today's Crypto Fear & Greed Index:
Read and learn about what the Fear and Greed Index is here We are not advocators we are educators
A Quick Market Update
Kazakhstan’s Internet Shutdown Drops Bitcoin Hashrate by 12%Some last minute news as the markets take a hit. The short story is that ever since China banned bitcoin mining, the miners have needed to move elsewhere, including the US and Kazakhstan. However, with increasing energy prices, miners have started to hike prices whilst protests have started to arise. To make matters worse, earlier today Kazakhstan suffered a internet shutdown, which was allegedly state-imposed. *Note that this is breaking news, new information is continuously being published on the matter*
What are DAOs and how can they change the world?
As you may already have figured out by now, the decentralised feature of cryptocurrencies and blockchain technologies has allowed for the flourishing of various innovations. One that has come to the forefront of this space are Decentralised Autonomous Organisations (DAOs). Simply put, DAOs are blockchain based organisations or companies that are collectively controlled and owned by its members. Decision-making occurs proposals and voting in which various tools can be integrated to encourage efficient collaboration and work delegation among members (For visualisation over how a DAO is structured and operated, look at the diagram below). Ultimately, what makes DAOs possibly disruptive is its ability to instigate decentralisation without sacrificing efficiency. The rest of the article will explore the potential applications of DAOs although we will definitely revisit this topic in the future so feel free to message us with questions you need answers to. You can also find additional links for further learning at the end of this article.
The key thing with DAOs is the fact that they act like your basic organisation but decentralised and fully transparent. Thus, in theory, it has the potential to be applied to multiple sectors of society from governments to venture capital funds. In fact, we have already seen DAOs being built up to build products, collect NFTs, invest and even provide services. Recent years has unfortunately seen a collapse of the public's institutional trust towards corporations and even governments. Which thus suggests a problematic area where DAOs can offer solutions. Below is a small list of use-cases where this type of organisation may provide value:
Charities: DAO charities can accept donations and membership from anyone and the group can decide where the money should based on various proposals from experts.
Companies: Employees can have pooled ownership, incentivize performance and work towards a shared goal and access a more democratic approach to decision-making without sacrificing significant efficiency.
Governments: DAOs can allow for the more efficient, transparent and democratic governance of states or communities through allowing for direct accountability whilst delegating tasks towards experts rather than relying on a few individuals to manage multiple domains. Although this is a stretch and would initially be very challenging to incorporate.
In general, there is a multitude of possibly beneficial applications of DAOs which makes it evermore exciting to read about. Although this article simply explored this at the surface level, here are some sources that you can look into to learn a bit more about this topic:
Hope you discovered something new or interesting from this read and I will see you next week!
Best regards,
Alexander Ekberg
Concept of the Week: The MVRV Ratio
Why is this Relevant? The MVRV Ratio can provide you with some valuable insights with regards to the price of a cryptocurrency. More specifically, this ratio functions as an indication of how close the price is to its ´´fair value´´, which in its turn can be used to make sense of the historical, current and future market movements The MVRV ratio is constructed by comparing two crucial factors:
The current market capitalization(For a cryptocurrency that is simply the current price times the amount of coins issued).
Realized capitalization(Essentially the value of all coins at the price they last transacted on chain. That is, what people actually paid for cryptocurrency X).
How is this Calculated? The ratio is quite straightforward:
MVRV = Market Cap / Realized Cap Hence, if the ratio is 1, the value of the cryptocurrency can be viewed as "fair". In all other scenarios, the price will deviate from this "fair value" to a certain extent, which has some interesting implications. Now let's try to answer the question that you probably have right now: How can we make sense of this concept in terms of real, valuable, insights and ultimately actions? Well, essentially, this ratio tells you how many people are sitting in front of their Coinbase screens, enjoying their healthy profits and bragging about their investment-skills. This is a little simplified, admittedly. However, the logic is as follows: As the market cap increases relative to the realized cap, this is a strong indication of a higher degree of unrealized profits in the ecosystem, which can be viewed as a sign of the cryptocurrency being overvalued since the price is above the ´´fair value´´ in this respect. Conversely, as the realized cap exceeds the market cap, this indicates that investors are not profitable, which can be regarded as the cryptocurrency being undervalued Let´s be more precise and specific with the numbers by providing 2´´rule of thumbs´´! For instance, some general consensus within the Bitcoin - community with regards to the MRVR Ratio is as follows: MVRV> 3,5 = Generally sign of late stage bull cycles. Meaning: You probably do not want to sell off all your assets and go all-in Bitcoin at this stage (That is, holding all other factors constant). MVRV<1 = Generally sign of late stage bear cycles. Could potentially be the bear market bottom. Meaning: Could be an attractive opportunity to start accumulating (or accumulate more) Bitcoin. As always worth mentioning, this is one of many valuable tools. Use your "macro -mindset". That is, do not trust wholeheartedly on one specific ratio to do the job or create successful outcomes in any respect. That simply won't happen. Instead, add this to your toolbox which you have started to construct and realize the valuable insights this concept can provide you with in specific situations and circumstances. Thanks for Reading! Best Regards, Victor Svensson
Investor Joe Portfolio Updates
Previous positions remain unchanged (view HERE). This week Joe continues his DCA strategy with 100$ split into:
Positions and Reasoning:
60% BTC: Had a the long awaited taproot upgrade recently (Taproot upgrade batches multiple signatures and transactions together).
40% ETH: Ethereum has become a trendsetter with its innovation in trust-less permission-less contracts known as “smart contracts”. Smart contracts can be placed on top of the blockchains in combination with a DAPP (Decentralized applications) leading to disruptive innovations like the NFT space.
DISCLOSURE: SOME DIGITAL ASSETS SOCIETY MEMBERS ARE INVESTED IN CERTAIN TOKENS AND COINS WHICH MAY HAVE BEEN SPOKEN ABOUT ABOVE. THESE STATEMENTS ARE INTENDED TO DISCLOSE ANY CONFLICT OF INTEREST AND SHOULD NOT BE MISCONSTRUED AS A RECOMMENDATION TO PURCHASE ANY COIN OR TOKEN. THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND YOU SHOULD NOT MAKE DECISIONS BASED SOLELY ON IT. THIS IS NOT INVESTMENT ADVICE.
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