The Art of Crypto Economics
Crypto markets continue to be weighed down by volatility and uncertainty stemming from the Trump administration’s focus on tariffs. While macroeconomic and regulatory conditions remain supportive, sentiment has yet to reflect the underlying strength in crypto fundamentals. This dislocation between price and potential is precisely why we are constructive at current levels. The uncertainty will not last forever, but technological adoption and use-case maturity are compounding steadily.
Bitcoin and the Broader Market
Bitcoin's bull case continues to strengthen. After all the talk of cutting spending, the US administration’s proposed "Big Beautiful Bill" is expected to add an estimated four trillion dollars to the federal deficit. Fiscal restraint appears to be off the table, reinforcing the structural tailwinds behind sound money assets like BTC.
Meanwhile, the broader altcoin market has quietly pushed to cycle highs following a four-year consolidation. From our perspective, this sets the stage for the next leg of the expansion.
Altcoins Remain Attractive
There are three reasons we continue to add selectively to altcoin positions:
Regulatory headwinds becoming tailwinds.
Core metrics including active users, transaction counts, dex volumes and aggregate fees continue to compound at exponential growth rates.
Tangible applications such as stablecoins and tokenised assets are moving into real-world usage.
Altcoins remain attractively priced. The average market value to realised value ratio (MVRV) for the top thirty assets sits below the aggregate cost basis, previous market tops have occurred at 2x aggregate cost basis.
The Speculation index remains muted showing no evidence of speculative excess. Only 13% of altcoins have outperformed BTCUSD over the last 90 days.
On-chain activity has also rebounded from the Q1 activity slowdown, reflecting early signs of an improving market cycle.
Thoughts Crypto Valuation
Valuing cryptoassets is not straightforward. These assets defy traditional models because they blend the characteristics of capital, commodities, and stores of value. No single framework captures all these dynamics. However, the field is progressing, and useful approaches are emerging.
Our friends at Just Cryptoeconomics have developed a comprehensive cryptoeconomic framework that illustrates just how complex the taxonomy of cryptoassets can be. Their dashboard tracks over fifty assets and reflects the diversity of rights, utilities, and value flows associated with cryptoassets. You can find more detail on their framework here and their dashboard here.
I sat down with Ben and Hugo to discuss their framework, you can watch our discussion here.
Before diving into emerging valuation metrics, it is helpful to reflect on a few core questions:
Are internet protocols worthless because they do not produce revenue?
Would the internet have scaled the same way if users had to pay a toll every time they clicked a link? Worded differently, would the internet have been more or less successful if it was more extractive?
Why do some assets like gold, high end real estate, and collectible wines trade far above their intrinsic or industrial value?
Is ETH better understood as a monetary asset or a technology platform?
These questions shape the ongoing debate around crypto valuation. Two frameworks are gaining traction in particular: Real Economic Value and Realised Store of Value.
For an in depth conversation about REV and RSOV you can go here.
Key Differences
REV focuses on near-term economic activity and is useful for price-to-earnings style analysis.
RSOV captures long-term value storage and capital retention on-chain.
REV is analogous to revenue multiples, RSOV is closer to monetary base analysis.
We find value in both, REV as a way to measure the value captured by validators while RSOV takes into account the capital flows and bigger picture role of network assets. At Etherbridge, we apply a blended framework based on four components.
Etherbridge Valuation Lens
Chain Revenue
The base layer earns fees through gas and MEV. This is captured in network activity composites and REV metrics.
Application Revenue
Just like the internet, applications on Ethereum generate fees. We track this through ecosystem-level metrics commonly referred to as network GDP.
Valuable State
The Ethereum ledger secures stablecoins, real-world assets, and a vast inventory of financial contracts. ETH as a staking asset underwrites this state and its integrity.
Capital Flows
ETH is also a monetary asset used as collateral and a store of value. RSOV and our Onchain Pulse composite help quantify these dynamics.
We use this framework to compare blockchains side by side and assess their investment case. While valuation in crypto is not absolute, it is becoming more grounded and empirical over time.
We would love to hear feedback on our thoughts on crypto valuation, you can reach out to jason@etherbridge.co
Business Update
We are excited to welcome Robert Shone to the team as Head of Data Science. Rob previously collaborated with Etherbridge before completing his BSc in Computer Science at Stellenbosch. He brings a sharp analytical mind and has already expanded the range of our systematic tools for asset selection and allocation.
Rob is also a competent software and smart contract developer. His contributions will be instrumental in improving the client experience as we continue to grow.
It is a privilege to attract this kind of talent at a pivotal time in our journey.
While it’s easier to look away, seeking to understand is the only path to a more enlightened and empowered world. Bitcoin, Ethereum and distributed ledger technology are complex systems. Etherbridge lowers the barriers to understanding this fast-growing digital economy.
Keep up to date with the world of digital assets by subscribing to the Etherbridge newsletter.
This is not financial advice. All opinions expressed here are our own. We encourage investors to do their own research before making any investments. Collective Investment Schemes (CIS) are generally medium to long term investments. The value of participatory interests may go down as well as up. Past performance, forecasts or commentary is not necessarily a guide to future performance. As neither Lima Capital LLC nor its representatives did a full needs analysis in respect of a particular investor, the investor understands that there may be limitations on the appropriateness of any information in this document with regard to the investor’s unique objectives, financial situation and particular needs. The information and content of this document are intended to be for information purposes only and should not be construed as advice.