Raoul Pal Formula Shows Impressive Adoption Of BTC, ETH, And Two Surprising Altcoins
Raoul Pal shared a formula that shows network adoption. The results are surprising.
Covered:
- Difficulty Of Valuing Crypto Projects
- Network Effect In Crypto
- What Drives Adoption?
Difficulty Of Valuing Crypto Projects
A thread about Network Effects and how to value digital assets:
For Global Macro Investor, my independent research service, @Remi_Tetot and I spent a long time analysing various on chain data sets to see what were the key drivers of network price and network effects …
— Raoul Pal (@RaoulGMI) March 12, 2022
One of the trickiest aspects of investing in crypto is figuring out how to value crypto. Unlike equities which have price-to-earnings ratios — which too are flawed but that’s a different story — cryptocurrency projects as varied as Bitcoin, Ethereum, Polkadot, and XRP are largely driven by speculation at this point.
Whether that’s because cryptocurrencies have no fundamental value or whether the royal we haven’t figured out how to value them is up to debate.
Network Effect
By yr 6 after the first 5m users, crypto has 295m participants and the internet had 119m. Crypto is growing at 137% a year while the internet grew at 76%. As I always say, this is the fastest adoption of technology the world has ever seen… pic.twitter.com/5hkaumxirS
— Raoul Pal (@RaoulGMI) March 12, 2022
Famed investment strategist Raoul Pal has proposed a way to think of the future value of several crypto projects. It centers around network adoption.
“Crypto is growing at 137% a year while the internet grew at 76%. As I always say, this is the fastest adoption of technology the world has ever seen…” Pal said via Twitter. He also estimates that crypto should grow to 1.2 billion users by 2025, and 5 billion by 2030.
As of of December 2021, crypto had around 295 million users. Users, though, don’t necessarily mean that every project will benefit.
What Drives Adoption?
Ok, but what drives this adoption?
Clearly, everyone owning a part of the network creates alliance of interests which leads to exponential growth…
And, simply put, blockchain is just a better way of doing things in the digital, exponential age.
— Raoul Pal (@RaoulGMI) March 12, 2022
“We now know that Metcalfe’s Law is the key valuation model for digital assets but its a hard formula to apply and Im a bit of an idiot so I wanted to find an approximation that helps understand network value. After a lot of work, trial and error, this is the answer I found:
THE VALUE OF A DIGITAL ASSET NETWORK IS DRIVEN BY DAILY TRANSACTION VOLUMES (IN DOLLARS OR UNITS OF VALUE) X NUMBER OF ACTIVE USERS
Using that formula, Pal applied it to several cryptocurrencies. The results for Bitcoin and Ethereum were hardly surprising.
When you apply this formula to digital asset networks, you get a really good fit.
Here is Bitcoin #Bitcoin pic.twitter.com/PRJES0QjGe
— Raoul Pal (@RaoulGMI) March 12, 2022
Here is #Ethereum pic.twitter.com/mqNqQ6ocky
— Raoul Pal (@RaoulGMI) March 12, 2022
Both networks obviously have been adopted in their own ways. BTC has its core fanbase that uses it constantly, while ETH is the reserve currency of Ethereum DeFi and NFTs.
Two other projects Pal looked at, though, tell us more about the health and future of crypto.
Or Polkadot… pic.twitter.com/gcCwNjhl7d
— Raoul Pal (@RaoulGMI) March 12, 2022
After a hot start, Polkadot has cooled off considerably since its launch. Not to mention, development on Polkadot isn’t getting as much attention as Ethereum or Cardano — though DOT features a surprising amount of play-to-earn gaming development — but using Pal’s formula its showing significant growth.
It even works for XRP.. pic.twitter.com/YXveEC8u1m
— Raoul Pal (@RaoulGMI) March 12, 2022
And, most surprising of all is XRP. The much-maligned Ripple coin has struggled for most of the last calendar year. But that could be largely attributed to the millstone the SEC put around the cryptocurrency. If anything, XRP’s network growth is even more impressive considering its had to deal with a lawsuit that largely eliminated the American market — Uphold is the only American exchange that has XRP.
