SLT valuation formula, part 1 of many

Tuesday there was a Coindesk newsletter sent out touching upon valuation of cryptos including three links to Medium posts on the topic:

• MV = PQ
• NVT (Network Value to Transactions) analysis = Network value/Daily transaction volume
• Metcalf’s Law with variations. Robert Metcalfe, the inventor of Ethernet, proposed a formula in the 1980s, Metcalf’s law = the value of a telecommunications network is proportional to the square of the number of connected users of the system (n²)

They have at least four things in common:

• They use the limited data available: price, transaction volume, number of coins, number of users, price and quantity for service offered
• Using basic math trying to set a value: functions, moving averages, correlations and overlays
• All saying we are in early phases to define methods for crypto valuations
• Long texts and to some extent hard to follow

I found the MV=PQ thinking most interesting where the author, Chris Burniske, includes the HODL impact on the price. He also writes MV=PQ is not a formula for predicting price, so he never gets to what I’m looking for, a formula with facts and estimates to end up with a fair current price and future value.

Below a first attempt, not complete or correct, to create a formula based on Chris thinking.

We all “know” the price must be connected to the number of coins in circulation – fewer coins available and an increasing demand must give a higher price. 

The MV=PQ is defined as:

• M = size of the asset base (or in other words Market cap)
• V = velocity of the asset (transaction volume divided by the number of coins)
• P = price of the digital resource being provisioned, in Smartlands case the 2% investment fee and 2% holding requirements, total 4% of the ABT value
• Q = quantity of the digital resource being provisioned, in Smartlands case the total value of the ABTs outstanding

So, we have the right side of the formula, well, we have the P but can make guesses about the Q. 

The velocity V we could get through transaction volume (in SLT) over 7,1 million.

Or even better with the “non HODL” quantity, about 0,6 million with using the large wallets (>3.000 SLT) as proxy for HODL.

But … calculating M (market cap) with “fixed” PQ and dived it with V we get a smaller M if the velocity V goes up … I want a formula that gives a higher M with higher V …

Maybe I can “change” the formula to M=P*Q*V*x where x is some kind of fixed factor to get to reasonable numbers? (I might today have invented the crypto Pi! 😊 😊😊)

The table below show some cases. The x is calculated backwards to get to current market cap (Q=1 in Current not get 0).

I like the two parts of the formula P*Q and V on the non HODL quantity, factors I’m sure impact the price but it’s the multiplication of them that bothers me, it makes no logical sense. 

A good start but needs much more thoughts and analyzes. Let’s see going forward. 

I will add Velocity to the weekly analyze, calculated as Weekly trading volume/average weekly SLT price (to express the trading volume in SLTs) * 52 (to annualize the volume) divided by Non HODL quantity.

The velocity is very high, last week’s trading volume have been over $6 million according to CoinMarketCap and that equals to 2 million SLT’s. And we know that it’s max 600k SLT in the “non HODL” wallets (most like much less) so the robots on Exrates are running hot.