“Factors impacting the price of a digital asset include supply and demand, number of competing digital assets, cost to produce the asset through mining, rewards issued to miners for verifying transactions to the blockchain, regulations governing sale and use, internal government, and news,” say the authors of a new paper, “Digital Asset Valuation.”

The paper’s authors, Wulf A. Kaal (University of St. Thomas, Minnesota—School of Law), Samuel Evans (PricewaterhouseCoopers LLP), and Hayley Howe (Emerging Technology Association), conclude: “The industry would benefit from uniform standards for digital asset valuation.”

Of particular concern, they argue, is that crypto exchanges are less liquid than traditional exchanges. They have fewer offerings, and the “number of token holders have not continued to expand exponentially.” In effect, this means that crypto assets are thinly traded. So market pricing, when available at all, overstates unrealized gains and fair value. Bitcoin might be priced at £38,000—but significant stakeholders could never sell at that price.

“Factors impacting the adoption, success, and price of digital assets that are unique from traditional assets include technical core (blockchain native, ERC-20, Dapp, etc.), token model (currency, stablecoin, utility, asset-backed, etc.), underlying value (inherent, permission to use, permission to work, physical asset, share in enterprise), valuation trajectory (inflationary or deflationary), user experience, ecosystem breadth, consensus protocol, and governance,” the authors say.

Kaal, Evans, and Howe recommend alternative market approaches to contend with blockage and liquidity issues, including the:

• Use of secondary trade or comparable token pricing data;
• Application of discounts for lack of liquidity when trade history is lacking or unreliable; and
• Use of newer market approaches such as network utility usage or minimum network value.