Digital Asset Valuation (I) - Store of Value method

Traditional stock valuation models such as Discounted Cash Flow or the Dividend Discount Model cannot be applied to digital assets as they don't have intrinsic value like stocks. So new valuation models are required for investors to evaluate the digital assets. There are various models being proposed.

The Store of Value Method is one of the common method, according to this model a digital asset's value is a function of its ability to act as store of monetary value for its investors and users. So the more a digital token can be used as a store of value, the more valuable it should become in the future.

For a digital asset to become a store of value, it has to meet some basic condition, such as scarcity, immune to theft, have low inflation, low cost of conversion and easy to transfer.

The proponents of this method usually associate Bitcoin with Gold bullion. At a current gold price of around USD 1,700 per ounce, the total value of the world's gold bullion reserve is around USD 10 trillion. So if we use Bitcoin to replace gold as global store value asset, knowing the total supply of Bitcoin is capped at 21 million unit, the price of one Bitcoin would end up being approximately USD 500,000 per unit.

However this method has some limitations, it may not applicable for assessing utility token.