There have been many attempts as of late to try to determine a proper short term valuation for Factoids (FCT) which are used in the Factom protocol. I created a medium term valuation article found here, but people are concerned because, at present, the network cannot handle the number of transactions per second (TPS) needed to justify such a valuation. In my opinion, that is NOTHING to be concerned about since Factom has plans to implement network sharding to scale the network which they’ll roll out with M3. But in the meantime, what is the proper valuation of FCT?
I’ll get to that, but let’s first point out how different Factom is to the (at present) 31 coins above it on coinmarketcap.com.
1. Factom is a protocol coin working to become TCP/IP of data integrity.
2. Factom solves an enormous real world problem.
3. Factom has big name investors.
4. Factom Inc and other companies are actively developing real world apps that will use the Factom protocol.
Most of the coins with higher market caps do not have near as much going for them as Factom does. Most people simply don’t understand the potential of Factom.
There is a Factom, “Price Floor Equation” which is (e*r)/i where i is monthly inflation once M3 comes around of 73,000, r is the FCT to EC conversion of .001, and e is EC used per month. Theoretically, the price will not go below this value otherwise there would be deflation.
At present, Factom is seeing about 400 EC used every 10 minutes or 2400 per hour or 57,600 per day or 1,728,000 per month. If we plug that current monthly EC usage of 1,728,000 into the Price Floor Equation, what is the price floor for FCT? $0.02367 per Factoid. SELL SELL SELL?! Hahah, not in my opinion. First, let’s round that price up to $.03 for ease of use. The current price of FCT as of this writing is $15.98 per FCT. What that means is investors like me are willing to pay 532 times more for Factom that the EC price floor price. This premium is often 1,000-6,000 as EC usage fluctuates and 400 oer block is historically high. Why is there such a huge speculative premium? We are speculating that Factom will become TCP/IP of data integrity. We’re not speculating that there will only ever be 1,728,000 EC used per month, we’re speculating that one day Factom will have billions and maybe even trillions of EC used per day. And every clue we get that makes that a little more likely such as increased EC usage, new contracts, new investments, new companies developing for the protocol, etc means Factom is one step closer to that goal.
At present, there is hope that Factom is starting to sign some bigger companies up to use the protocol and thus make EC entries. As of yet, no names or real news has been released regarding any big companies. As such, the current speculative multiple of 532 is based upon not knowing for sure if any big companies are going to use Factom, just hope. If/when big names are released, there is a very real chance that speculative multiple of 532 becomes FAR bigger while we wait for those companies to ramp up usage of the Factom protocol. However, just for ease of calculations, let’s say the speculative multiple drops to 500 and the new companies begin to use just 500,000 entries per day or 15 million per month which is WELL within the current TPS ability of the protocol. If you plug 30 million EC into the price floor equation, you get a price of $0.41. Multiply that $.41 by the 500 multiple and you get a FCT price of $102.50.
So at current speculative multiples and if big name companies were announced (which I again believe would greatly increase that speculative multiple as fundamentals will have improved but we’re being conservative here) that use just 500,000 entries per day then the FCT price becomes $102.50 each.
And that, my friends, is why I believe Factom is by far the most undervalued cryptocurrency there is and I’m in it for the long haul.
*edit* July 21st 2017
I feel my methodology here has been somewhat validated after a conversation with Paul Snow, Chief Architect of Factom. In a conversation with me on Slack, he said:
paulsnow [2:11 PM]
@dchapman I spent hours and hours building models in spreadsheets to look at market dynamics with Factom. I tweaked every variable under my control via the code. What I came to recognize is that perceived value of the protocol will drive the token price for the first few years, independent of anything I put in the code. I did find that the mechanism did a great job of ensuring a powerful floor price of the token value that was defined by protocol use. The mechanism only gently over time moderated a very high token value.
So maybe the way to think about it is to identify the floor value, and figure some multiple of that is where the token price is likely to stay. But I would avoid thinking that usage will ever drive off any inflation in Factom. Because if we were riding a token value set where inflation was zero due to high use, it is unreasonable to think people will not want that token. Which will drive up the token price and trigger inflation.
Now, I don’t for a second think that 500 multiple will hold true even over the short term. As mentioned, especially if/when we get big name contracts, I believe it’ll be much higher. Then, as the protocol matures over the years and, “Factom’s Law” (Think Moore’s Law but applicable to growth of the Factom Protocol) is determined, the multiple will come down somewhat to reflect expected growth just as large companies see with P/E ratios.
Disclaimer: I own Factoids and am no doubt biased. Please do your own research as this is simply my opinion and there may be aspects to Factom that I don’t yet understand. For example, it’s possible that EC usage from even large companies may not be that high. There are many unknowns.