- Blockworks
- Posts
- đȘ Crypto investing isnât just about price anymore
đȘ Crypto investing isnât just about price anymore
Historically, itâs been all narrative, no substance
Brought to you by:
âPrice is what you pay, value is what you get.â
â Warren Buffett
Crypto investing isnât just about price anymore
One of the best stock pitches I ever heard came from a salesperson I worked with who had the original thought that Porsche was not an automaker but a maker of luxury goods.
That mattered because automakers typically trade on a single-digit multiple of earnings whereas luxury goods companies often trade on a multiple of 30x or more.
So just by reframing the narrative around Porsche, the salesperson could argue that its shares were 3x undervalued.
He was right: The luxury-goods narrative caught on and the shares re-rated as such, making Porsche one of the best-performing stocks of the early âaughts.
More importantly, this is what makes investing fun, in my opinion: Endeavoring to understand both the substance of a business and the narrative investors will use to value it.
From that point of view, Iâd argue that investing in the nascent asset class of digital assets has been a little too fun â historically, itâs been all narrative, no substance.
But it feels like this is changing: More crypto projects are generating revenue, and investors are increasingly using those earnings to assess the value of their tokens.
Consider, for example, the new crypto exchange and nascent layer-one blockchain Hyperliquid, which has been generating roughly $1 million in fees per day.
That puts Hyperliquidâs HYPE token on about 70x fees (which are effectively earnings). That is pretty expensive relative to other crypto exchanges like Drift or dYdX, which trade on about 25x fees, as noted on a recent 0xResearch podcast.
But 70x is pretty cheap relative to some emerging layer-one blockchains like Sui and Aptos, where the fees are so low the tokens trade on effectively infinite valuation multiples.
So, much like debating whether Porsche is a maker of cars or luxury goods, we can now have an investment debate about whether Hyperliquid is a crypto exchange or a layer-one blockchain.
What adds real weight to the debate is that 50% of Hyperliquidâs fees are allocated to buying HYPE tokens.
In equities, shareholders typically donât urge companies trading at 70x earnings to buy back their stock, because thatâs roughly like reinvesting earnings at a yield of only about 1.4% â and shareholders never ask early-stage companies to return capital at all.
But crypto is different, as evidenced by the eye-popping rally in HYPE, which is up 650% since its late-November launch.
That performance is at least partly attributable to Hyperliquidâs price-insensitive commitment to use half its earnings to buy its native token â and this, I think, has captured the emerging zeitgeist in which crypto investors are looking for real, measurable value from their tokens (as opposed to the memetic value of memecoins and governance tokens that can only be measured by price).
Further evidence of this trend is Dan Smithâs metric of âreal economic valueâ (or REV), which has been winning mindshare as a way to value layer-1 blockchains â REV gives crypto investors something to debate beyond memetics and the equally intangible âmonetary premium.â
Iâd also cite Bitgetâs BGB token, which recently rocketed into the top 25 by market cap after the exchange promised to return 20% of its profits to tokenholders by buying its token.
Even the hottest, most speculative crypto trend â AI agents â has an element of traditional value to it.
The largest AI-agent coin by market cap is VIRTUAL, driven in part by the fact that the Virtuals Protocol generates real revenue.
In its short, two-month existence, the platform for launching AI-agent tokens has already earned $57 million in fees. And that, I think, makes it seem like a safer bet than buying the AI-agent tokens themselves â a classic picks-and-shovels play that any traditional investor would understand.
What traditional investors probably would not understand is that the VIRTUAL token is up about 6,700% over the past three months, but still only trades on about 11x fees (if youâre willing to annualize its first three months of results).
That may not turn out to be âvalueâ because itâs unclear whether the craze for AI-agent tokens will last, and even if it does, token launchpads like Virtual may not have any sort of a moat.
But that makes for a familiar-looking investment debate and there are many more such debates to be had.
Blockworks Research recently highlighted Metaplex, for example. The Solana-based token launchpadâs token, MPLX, trades on about 7.2x earnings, with half of those earnings used for buybacks.
That multiple is again an extrapolation of recent results, but Marc Arjoon thinks it may prove conservative: âThe token's current market valuation may not fully reflect the potential for future growth,â he wrote in a recent note with an attention-grabbing title: Metaplex: Criminally Undervalued.
âUndervaluedâ is not a term generally associated with crypto tokens to any degree, let alone âcriminally,â so that feels like something new to me.
Another recent Blockworks Research note that got my attention was on the AAVE-like lending protocol, Suilend â âA fundamental play on Sui DeFi with a good risk/reward profile,â according to Carlos Gonzalez Campo.
Suilendâs SEND token, I learned, trades on about 21x earnings, which seems to me like a reasonable growth premium relative to AAVEâs 11x multiple â seeing as everyone is excited about the SUI ecosystem at the moment and Suilend should presumably grow a lot faster than AAVE, Iâd have guessed the valuation disparity would be bigger.
Thatâs not investment advice, because I donât know very much about either Suilend or SUI, but these are the kinds of developments that make me think crypto could finally evolve into an investable asset class, rather than just a tradable one. Debating the value of a profit-generating protocol is far more compelling than speculating on the price of a profitless memecoin.
Not that this will make things any easier, because investing is hard, too: Porsche shares now trade on just 3x earnings.
â Byron Gilliam
Brought to you by:
Unlock the power of DeFi with Odos!
Spanning 14 blockchain protocols, trusted by 3M+ unique wallets, and powering 80+ API partners, Odos delivers scale, reliability, and results you can count on.
Trade any token effortlessly with our cutting-edge order routing, seamless user experience, and fully transparent quotes. Ready to elevate your platform? Partner with Odos and bring advanced trading solutions straight to your users via API.
Start trading smarter with Odos today!
Ethâs Modular Bet Will Work
Hack VCâs Alex Botte and Alex Pack break down Ethereum's controversial shift from monolithic to modular. Get their predictions on which L1s and L2s will dominate in 2025.
Listen to Empire on Spotify, Apple Podcasts or YouTube.
In case youâve been living under a rock or just havenât noticed:
Infra for agents is shaping up to be the L1 trade of this cycle.
Itâs the same playbook as L1s in 2021:
âWe need more block space for all these consumer apps coming in the future.â
As we now know, the promised⊠x.com/i/web/status/1âŠâ Game (@game_for_one)
7:32 PM âą Dec 30, 2024
Something going on here â itâs rare to see such a divergence between the US 10yr yield and the oil price, because a low and stable oil price SHOULD, all else equal, imply low and stable inflation expectations and therefore yields. /1
â Noelle Acheson (@NoelleInMadrid)
6:36 PM âą Dec 30, 2024