This episode explains how to value cryptoassets using the equation MV=PQ, treating each network like a mini-economy. Chris Burniske says the key is to estimate the network's total economic output (like Filecoin's storage fees), then divide by the velocity of money to find the token's fair value. He likes Filecoin (needs to predict storage price and user adoption), Bitcoin (about $1B daily on-chain transactions, but 60% held as savings), and Aragon (an overlooked tool for managing organizations on the blockchain). He warns that high velocity is bad for investors because it can make tokens worthless.
Chris Burniske, on the Invest Like the Best program, explored a valuation framework for crypto assets, with the core idea being the use of the Equation of Exchange as a starting point for assessing utility value. He distinguishes between cryptocurrencies, crypto commodities, and crypto tokens, and e
Chris Burniske is a former ARK Invest analyst (once the only traditional buy-side analyst covering Bitcoin) and now a partner at Placeholder. The main thread of this episode: using the equation of exchange (MV=PQ) to build a valuation framework for crypto assets, distinguishing among three asset types: cryptocurrencies, crypto commodities, and crypto tokens. Chris Burniske argues that the key to valuing crypto assets is not predicting price, but quantifying the GDP of the network economy (the PQ side), then using velocity (V) to back out the required monetary base (M)—this is conceptually homologous to traditional DCF models, but the object shifts from corporate cash flows to the scale of the protocol economy.
Chris Burniske argues that MV=PQ is the starting point for valuing crypto assets, treating each protocol as a "micro-economy" whose GDP is determined by the total value of goods or services provided by the network.
Chris Burniske argues that when valuing a token, one must subtract from the total supply those held as a store of value (velocity of zero) and those staked for consensus, because only the "active float" participates in price discovery.
By decomposing Bitcoin's velocity, Chris Burniske reveals a counterintuitive fact: as a medium of exchange, Bitcoin's actual velocity may be as high as 15 times per year, far exceeding the overall velocity of 5–6 times.
Chris Burniske introduced the NVT ratio (Network Value to Transactions), proposed by Willy Woo, as a valuation metric for crypto assets, analogous to the P/E ratio in traditional equities.
Chris Burniske argues that, from a 10-year investment perspective, technology is the "entry ticket," governance is the core, and the cryptoeconomic model determines the long-term trajectory of token value.
1. Technology: The developer's capability in distributed systems — "Is it trying to solve a problem that no one has cracked in the past 20 years, or does it have a more feasible roadmap?"
2. Governance: Chris considers this the most critical factor — "All discussions about forks ultimately boil down to governance issues. Is the asset distribution fair? What is the process for software update participation? Who gets the newly issued tokens? If governance is unfair, it is easily forked, and value flows to competing protocols."
3. Cryptoeconomics: The utility value curve of the token — "Is it upward and to the right, stagnant, or even downward? This depends on the balance between the adoption curve (unit economic growth), the cost decline curve, and the inflation rate."
Chris Burniske believes Aragon is an overlooked project that offers a decentralized organizational management framework and could become the "VeriSign" of the blockchain world.
Chris Burniske systematically analyzes the survival risks of crypto networks, arguing that the most realistic threat is "kidnapping core developers," rather than technical attacks.
| Position | Analyst View | Key Data |
|---|---|---|
| Filecoin | Bullish (as a crypto commodity case) | Requires forecasting per GB price decline curve, TAM, and S-curve penetration rate |
| Bitcoin | Bullish (as a cryptocurrency case) | On-chain daily transaction volume ~$1 billion, NVT ~90, overall velocity ~6, medium-of-exchange velocity ~15 |
| Steem | Bullish (undervalued crypto token) | 2/3 of block rewards go to content creators, 1/6 to curators; has undergone 19 hard forks |
| Aragon | Bullish (overlooked project) | ERC-20 token, provides on-chain organizational management framework |
| Augur | Neutral (as a crypto token case) | Prediction market, censorship-resistant, but needs to cross the consumer adoption chasm |
| Ethereum | Neutral (as a crypto commodity case) | Plans to transition to PoS in Q1 2018, requires staking 1,000 ETH |
1. "Crypto asset valuation is not about predicting prices, but quantifying the GDP of the network economy." (Chris Burniske) — Using the MV=PQ framework, first calculate PQ (value of goods × quantity), then back-calculate M (required monetary base), and finally divide by circulating supply to derive the token's utility value.
2. "PoW assumes everyone is a bad actor and continuously consumes energy; PoS requires you to stake assets to prove you are a good actor, or else face penalties." (Chris Burniske) — The staking mechanism is more efficient and supports token prices by reducing circulating supply.
3. "Bitcoin's medium-of-exchange velocity may be as high as 15 times per year, 2.5 times the overall velocity (5-6)." (Chris Burniske) — Because 60% of Bitcoin is held (velocity = 0), the remaining 40% must circulate at high speed to sustain on-chain economic activity.
4. "Governance is the most critical factor for long-term investment — if governance is unfair, the protocol can easily be forked, and value flows to competing networks." (Chris Burniske) — Technology is the entry ticket, but governance determines who survives.
5. "The NVT ratio (Network Value to Transactions) is the P/E ratio of crypto assets; Bitcoin has historically bottomed around 50." (Chris Burniske, citing Willy Woo) — NVT surges after a bubble bursts but softens before the burst (arbitrage trading inflates the denominator).
6. "The most realistic existential risk is not a 51% attack or regulation, but kidnapping core developers." (Chris Burniske) — ASIC capacity constraints make a 51% attack hard to sustain; regulation is a whack-a-mole game; personal attacks are the most feasible threat.
7. "If velocity is infinite, M = PQ ÷ ∞ means the token's value goes to zero." (Chris Burniske) — Therefore, protocols should embed mechanisms to reduce velocity (e.g., staking), and investors prefer lower velocity.
8. "Someone will win a Nobel Prize for this — maybe not me, but someone in the crypto space will win it in 10-20 years." (Chris Burniske) — Analogous to the Black-Scholes model, crypto asset valuation requires its own theoretical breakthrough.