28 November 2023

CFA Institute Launches Cryptoassets Valuation Guide for Investment Professionals

Developed by the CFA Institute Research and Policy Center, the guide seeks to equip investment professionals with the most relevant valuation models and tools to support analysis of cryptoassets, in connection with smart contract platforms, decentralized applications, and bitcoin.

CFA Institute, the global association of investment professionals, has released a new cryptoassets valuation guide.

Developed by the CFA Institute Research and Policy Center, the guide seeks to equip investment professionals with the most relevant valuation models and tools to support analysis of cryptoassets, in connection with smart contract platforms, decentralized applications, and bitcoin.

The guide contributes toward the development, over time, of a framework for valuing cryptoassets. The issue of valuation has become a critical topic given the growth in cryptoassets over the past decade, currently estimated to exceed $1 trillion in market capitalization.¹ At the same time, the cryptoassets market has undergone significant upheaval and price volatility, making an analysis of valuation drivers imperative for any investor or investment professional investing, or considering an investment in cryptoassets.

 

The valuation models in the guide include fundamental valuation approaches such as discounted cash flow analysis and relative valuation approaches adapted from traditional finance, where appropriate, as well as newer models specific to cryptoassets.

 

The models have been informed by interviews with industry professionals and a review of current literature. Given the plethora of valuation approaches available, many of which lack testing or rigor, only those models currently in use or considered relevant among practitioners are included in the guide.

 

 

The primary objective of CFA Institute is to ensure that investment professionals and the wider industry are informed of current valuation methods and the discourse over their advantages and disadvantages. The publication serves as part of a proactive undertaking toward a larger debate on the value proposition of cryptoassets.

 

Rhodri Preece, CFA, Senior Head of Research, CFA Institute, comments:

 

“This guide provides a framework for investment professionals to undertake a thorough analysis of the valuation drivers of cryptoassets, including fundamental characteristics such as cash flows, growth rates, and tokenomics. Current valuation models have their limitations, and the lack of historical data make statistically robust cryptoasset valuations challenging. No single valuation model or metric should be used in isolation.”..

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