What gives an asset its value?
Perception
- People perceive an asset has value...mostly trust...that the protocol/foundation can do what it says it can do...and it has what it says it has (assets).
- And that the investors money is secure, will hold its value, and can be used as a medium of exchange.
What is the protocol/foundation's net worth?
- Net Worth = Assets - Liabilities.
- Assets and Collateral…Is the asset backed by other liquid assets…can those assets be exchange for cash in case trust is eroded?
- And how much are the assets worth…especially in a selloff!?! Basically putting a floor in the price.
- Liabilities - How much debt does the protocol/foundation have?
Does protocol/foundation produce an income or any other value?
- I'm not talking about what you receive, like high APR’s…I'm talking about whether it produces real assets that other people are willing to buy…like cars or houses or crops.
- Or creating some other value that is better than the alternatives...ie...faster or more efficient transactions...it can mow your lawn? Just kidding :)
Is the market saturated?
- How many other competitors does protocol/foundation have?
- Because the more saturated the market is, the less value each competitor will have, because they're all competing for the same amount of money… regardless of what coinmarketcap says the market capitalization is.
Is the global pool of money/credit shrinking or expanding?
Less money means lower asset prices…no matter the asset.
In Conclusion:
An asset derives its value from perception, net worth, income, market saturation, and the global pool of money and credit. Whether you are buying crypto, or stocks in conventional markets, or a business, make sure you do your homework beforehand and evaluate its value.
Stay frosty people and solvent.