Cryptocurrency as an asset class has seen a tremendous growth in the last few years, driven mainly by speculation, with little to no focus on fundamental value. As the cryptocurrency market starts to mature, the focus on fundamentals will become a lot more prominent. Investors will begin to look for cryptocurrencies with both a use case and an underlying value.

Traditionally, stocks have been the main asset class for investors to achieve above normal returns. Since the establishment of London Stock Exchange in 1698, countless valuation methods have been developed, attempting to fairly value a stock. Now here we are, over 300 years later, with the new and evolving market of cryptocurrencies. Yet there is an underlying problem within the cryptocurrency market, regarding true value. Valuation techniques have been discussed widely, from the “Store of Value” thesis to the “Token Velocity” thesis, yet established investors are still not fully convinced by the intrinsic value of a cryptocurrency. One could argue that cryptocurrencies which offer Masternodes have an intrinsic value, as they return you a yield of cryptocurrency. Yet we are back to questioning the intrinsic value of the cryptocurrency that you are yielding.

Here comes the Safex Marketplace, where the cryptocurrency valuation problem is resolved. The Safex Marketplace is both private and decentralised. Individuals and businesses will be able to exchange goods and services over the marketplace, with the total dollar amount of these transactions being the Gross Merchandise Volume (GMV). GMV is a term used in online retailing to indicate a total sales dollar value for merchandise sold through a particular marketplace, over a certain period of time. We are going to bring things back to basics and let the GMV represent all traded goods and services on the Safex Marketplace, allowing us to rationally value the price of a Safex Token.

The Safex Marketplace is planned to be launched in Q4 2018 and the team have made projections for the marketplace GMV, for the first two years. Any projection beyond two years lacks sufficient evidence, as it will be based upon the previous years results. So we will be conservative and stick to a two year projection only.

The team projects that the Safex marketplace will have a GMV of $500m in the first year. This means that by Q4 2019, $500,000,000 worth of goods and services will be expected to be transacted over the marketplace. The Safex team are fairly confident that they will reach this target. To give this figure some perspective, Amazon achieved a GMV (Revenue) of $600m in 1998. This GMV was achieved when only 3.6% of the global population had access to the internet. The situation is much different today, with 54.4% of the world’s population having internet access. All things considered, the Safex team’s enthusiasm towards achieving a $500m GMV in year 1, must be respected.

The teams second year projection for the Safex marketplace, is to have a GVM of $2b. That’s $2,000,000,000 worth of goods and services transacted over the marketplace, by Q4 2020. Again we can compare this to Amazon in 1999, they achieved a GMV (Revenue) of $1.64b, when only 4.1% of the global population had access to the internet.

Now we have put the GMV projections into perspective, let’s look at why this is relevant to the price of the Safex Token. There is a 5% fee on all transactions over the Safex Marketplace. This fee will be distributed proportionally to all token holders, as a form of dividend. Therefore, the higher the GMV of the marketplace, the higher the 5% fee is worth, resulting in a higher dividend per token. As a result, the intrinsic value of a Safex Token is directly proportional to the GMV of the marketplace.

One important note that must be considered is that there is a ‘Lock in’ procedure. This procedure means that a Safex Token holder would have to intentionally ‘Lock in’ their tokens, in order to be eligible for the dividends. Hence, the total circulating supply of 2,147,483,647 will not represent the total ‘Locked in’ tokens. The tokens that are not ‘Locked in’ will either be lost or traded on exchanges. The Safex team have estimated that 20% of the tokens will not be ‘Locked in’, and therefore, will not be available to receive dividends. Using this assumption, there will be approximately 1,718,000,000 tokens that will be receiving dividends, at any given time.

We now have the amount of tokens receiving dividends and the 1 and 2 year projections for the Safex Marketplace GMV. Let’s now find the dividend per token, for both projections.

There are multiple ways you can use this Dividend/Token data to value an asset, but for this case, we will keep things simple. We will use a very common ratio called the Price to Earnings Ratio (P/E Ratio). This ratio represents the amount of times a stock trades above its earnings, which is represented by Earnings Per Share (EPS) (eg. An EPS of $0.10 and a P/E ratio of 30, will mean the asset is trading at $3.00). In this case, we will use the Dividend/Token figure to represent the EPS.

The most subjective part of our calculation, is to estimate a fair P/E ratio for the Safex Token. We can never really know how many times the token will trade above its earnings. Generally, the higher the P/E Ratio of an asset, the higher the investor expectation for future profits. Let’s gain some reference by looking at the P/E Ratios of some e-commerce stocks.

As you can see, all e-commerce stocks generally trade well beyond their EPS. Stocks that have a ‘Negative EPS’ means that the company is not currently profitable and earnings are negative for each share. The average EPS for these e-commerce stocks is 91.4, but let’s take out the outliers of JD and Amazon. This leaves us with an average P/E Ratio of 55. I am going to remain conservative and use the P/E Ratio for the S&P 500 (Index of 500 US stocks) of 25, as a benchmark. I will take the midpoint between the average P/E Ratio of the S&P500 and the P/E Ratio for this sample of e-commerce stocks (55+25)/2. This leaves us with an estimated P/E Ratio of 40, for the Safex Token.

As a side note. Out of the sixteen e-commerce names listed above, four are losing money and only two pay a dividend, Rakuten (0.4%) and Expedia (1.2%). That’s centralisation for you.

So based on the two GMV projections and our estimated P/E Ratio, the estimates for the price of the Safex Token are as follows;

A common term used in finance is ‘priced in’. This is when information is already incorporated within the price of an asset. Hence, it’s impossible to add a time component to any projection, as we cannot judge when or how much information will be ‘priced in’ to an asset. A basis for valuation is rare within the cryptocurrency market, yet the Safex Marketplace allows us to make rational calculations based upon fair assumptions. As always, we let the market decide.