Tokenomics and the intrinsic value of cryptocurrencies

Abstract

The purpose of this Master thesis is to examine the existence of intrinsic value in cryptocurrencies and to provide a framework for their evaluation. I described the unique characteristics, capabilities and disadvantages of the underlying technology and detailed the most common criticisms, especially those regarding their dubious economic premise. I classified tokens by their use case and provided arguments for the existence of intrinsic value in every category. Subsequently, I introduced a theoretical valuation framework, which focuses on identifying the value drivers in each case. Lastly, I used on-chain analysis to reach a rough estimation of the intrinsic value of Bitcoin, followed by sensitivity analysis on the relevant parameters. Results indicate a wide range of possible values, depending on the initial assumptions. Initial assumptions often rely on intuition, while the interpretation of on-chain metrics is not always apparent. I concluded that the biggest challenge lies in assessing the fraction of a cryptocurrency’s market capitalization that should be attributed to speculation, rather than utility.