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Block #9

Academy — models

Valuation models in plain language

Nine models analysts use to estimate what a coin is worth, explained without jargon: what the model does, an everyday analogy, the steps and where it breaks. With a small chart for each.

Nine valuation models explained. Seven of them can currently be calculated live with market data.

First: three basic terms

Know these three words and every model on this page makes sense.

Market cap
Price times the number of coins in circulation: the price of the whole network, not one coin.
Issuance
The number of new coins added each year. Low issuance means little new supply.
Assumption
A number you fill in because nobody knows it, like a future market share. Change it and the result changes.
01 — How it works

Stock-to-Flow (scarcity)

The less new supply arrives versus what already exists, the scarcer — and, per this model, the pricier.

H0H1H2H3H4ratio

Reading the chart: The curve climbs steeply: each halving cuts new issuance in half, so the scarcity ratio doubles.

Compare it to

Think of gold: a lot exists above ground, yet only a few percent is added each year. Bitcoin does the same on a fixed schedule.

Step by step

  1. 1Count the coins in circulation (the stock).
  2. 2Count how many are added this year (the flow).
  3. 3Divide stock by flow: that number is the scarcity ratio.
  4. 4The model turns that ratio into a price with a historical formula.

Where it breaks: Scarcity alone creates no value. Without demand, a rare thing is simply rare and cheap.

Run this model live
02 — How it works

Power law (long-run growth)

Price does not grow in a straight line but along a fixed curve as the network ages.

log prijslog tijd

Reading the chart: On a log scale the curve becomes a straight line. Price swings around it: peaks above, bottoms below.

Compare it to

Like a city: the first ten thousand residents arrive fast, then growth slows but keeps going.

Step by step

  1. 1Count the days since the network launched.
  2. 2Plot price and time on a log scale (each step is ten times).
  3. 3Fit the straight line that runs best through all points.
  4. 4That line is the 'normal' price; above is expensive, below is cheap.

Where it breaks: A line through the past guarantees nothing about the future. One rule change or hack can break the series.

Run this model live
03 — How it works

Mayer Multiple (thermometer)

How far is today's price above or below the average of the last 200 days?

2,4 duur1,00,8 goedkoop

Reading the chart: The line oscillates around 1.0. The orange zones top and bottom are the extremes where turns often happened.

Compare it to

Like a fever thermometer: 1.0 is normal, 2.4 is overheated, 0.8 is chilled.

Step by step

  1. 1Take the average close of the last 200 days.
  2. 2Divide today's price by that average.
  3. 3Above 2.4: historically expensive. Below 0.8: historically cheap.

Where it breaks: It says nothing about value, only about speed. A market can stay 'too expensive' for months.

Run this model live
04 — How it works

NVT (price-to-usage ratio)

Compares the network's value with how much money flows through it daily.

waardegebruik

Reading the chart: The two bars show value versus usage. The bigger the gap, the higher the NVT.

Compare it to

Like dividing a shop's price by the turnover passing through it each day.

Step by step

  1. 1Take the market value of all coins combined.
  2. 2Take one day of trading or transaction volume.
  3. 3Divide the first by the second.
  4. 4High result: lots of price, little usage.

Where it breaks: Trading volume is not real usage: wash trading and exchange flow distort it.

Run this model live
05 — How it works

TAM (market-share scenario)

If this coin captures X percent of an existing market, what is one coin worth?

8%totale markt

Reading the chart: The ring shows the assumed slice of the total market. Shift the share and the outcome moves proportionally.

Compare it to

Like valuing a new streaming service if it captures 5% of all viewers.

Step by step

  1. 1Pick the market the coin targets (gold, payments, bonds).
  2. 2Pick a share you find credible.
  3. 3Multiply the market by that share.
  4. 4Divide by the number of coins that will ever exist.

Where it breaks: The result is only as good as your assumption. One percentage point changes the price by tens of percent.

Run this model live
06 — How it works

Cash flow (network as a business)

Treat the fees users pay as revenue and value the network like a stock.

omzet10x30x50x

Reading the chart: The bars show annual revenue and the valuation it implies at different multiples.

Compare it to

Like a toll road: the more cars pay the toll, the more the road is worth.

Step by step

  1. 1Add up the fees the network collects over a year.
  2. 2Pick a multiple, as markets do for stocks (e.g. 30x).
  3. 3Multiply revenue by that multiple.
  4. 4Divide by the coins in circulation.

Where it breaks: Fees swing wildly and often do not accrue to the coin holder at all.

Run this model live
07 — How it works

Dilution (how much is still coming?)

Shows what share of all coins is not circulating yet and can weigh on price later.

in omloop 77%nog 23%

Reading the chart: The bar shows the share already circulating (orange) versus what is still to come (grey).

Compare it to

Like a company issuing extra shares later: your slice of the pie shrinks.

Step by step

  1. 1Look at how many coins circulate now.
  2. 2Look at the maximum that will ever exist.
  3. 3The gap is future dilution, in percent.

Where it breaks: New coins need not be sold. Dilution is a risk, not a certainty.

Run this model live
08 — How it works

Metcalfe (value of the network)

The more people use a network, the faster its value grows: connections count for more than users.

waardegebruik

Reading the chart: The line bends upward: doubling users roughly quadruples the model value.

Compare it to

Think of a phone network: one handset is useless, two is handy, a thousand makes calling obvious.

Step by step

  1. 1Count active addresses or users per day.
  2. 2Square that number: every user can connect to every other one.
  3. 3Multiply by a constant derived from history.
  4. 4Compare that model value with the network's current market cap.

Where it breaks: Addresses are not people. Bots, exchanges and reused addresses inflate the user count easily.

09 — How it works

Realized price (average purchase price)

What the market paid on average for every coin in existence — the collective cost basis.

2,4 duur1,00,8 goedkoop

Reading the chart: Above the line the market is in profit on average, below it in loss. That underside historically coincided with bottoms.

Compare it to

Like the average purchase price of every house on a street: if the market price is below it, the block is underwater.

Step by step

  1. 1Take, for each coin, the price at which it last moved.
  2. 2Add all those amounts: that is realized value.
  3. 3Divide by the number of coins in circulation.
  4. 4Compare the result with today's price.

Where it breaks: Moving is not selling: transfers between your own wallets distort the average cost basis.

Calculate with live prices

On the models page you adjust the assumptions and instantly see what each model implies for bitcoin, ethereum, XRP and solana.

Open the calculator

Models are not forecasts and not investment advice. They only make the assumptions inside a price visible.

More on Block #9.

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