Forbes Magazine featured Vellum Managing Partner Eric Kovalak in “Here’s What Investors Need To Know About Cryptocurrency“:
Crypto Valuation = Philosophy + Technology?
Eric Kovalak, a managing partner for Vellum Capital, a hedge fund management firm specializing in crypto assets, says, “People are trying to translate the value of cryptocurrencies into a traditional model where they’d use something like P/E.”
While there is a calculation called NVT Ratio (i.e., network value to transactions ratio) that mirrors a kind of P/E ratio for Bitcoin, its creator says it’s “not always” a valuation metric for other cryptocurrencies. According to Mr. Kovalak, putting a value on a cryptocurrency means evaluating the asset against a philosophy and technology. He says investors should ask themselves if the cryptocurrency’s fundamental structure provides a transparent, decentralized solution.
Mr. Kovalak says a digital coin should also solve a problem that aligns with the philosophy of a distributed currency solution. For example, digital coin XRP solved the technological problem of allowing Visa- and Mastercard-like volumes of transactions on the network, which has been a challenge for the current structure of Bitcoin. However, XRP is on its own private permission ledger, not a distributed blockchain, and per Mr. Kovalak’s view, not philosophically aligned to the distributed model advocated by many crypto experts.
Formulating A Crypto Investment Strategy
For those seeking safety in numbers, Mr. Kovalak offers this novel idea for investing in a new and largely untested industry: Pick your top five crypto investments from among the largest cryptocurrencies measured by market capitalization and manage them like your own mini-crypto-fund.