The fundamental value drivers of cryptocurrencies have been questioned a lot since the 2017 bull run. Professional investors that are considering an allocation into digital assets are wondering what the assets’ real value is. A recent report by crypto-asset manager Iconic Funds and Cryptology Asset Group, a leading European asset manager for crypto assets and blockchain-based businesses, aims to shed light on this topic. 

The fundamental value of each cryptocurrency depends on its unique use case, which makes it impossible to apply a single valuation method to every token. For example, Bitcoin 

BTC

$23,011

 can be analyzed with traditional commodity valuation models because one of its use cases is as a hedge against monetary depreciation. On the other hand, Ether 

ETH

$1,660

 does not have a capped supply like Bitcoin. Other coins such as MakerDAO’s

MKR

$723

token are governance tokens designed to empower community governance in decentralized finance, or DeFi, protocols.

The new report by Iconic Funds and Cryptology suggests a way to value a diverse range of digital assets. The study — which was authored by Robert Richter, a research fellow at the Frankfurt School Blockchain Center, and Philipp Rosenbach, an investment banking analyst at Alantra, identifies 19 value drivers for cryptocurrencies within five clusters: financial factors, development activity, social media dominance, network usage, network size and sophistication. One of the report’s notable finds is that the number of online searches for Bitcoin is not a significant predictor of its price; however, social media presence is a real value driver for altcoins.

Read the research report issued by Iconic Funds and Cryptology here.

According to the analysis, the value of Bitcoin appears to be primarily driven by its stock-to-flow ratio. Another variable that could serve as a fundamental value driver for Bitcoin is the number of active addresses: The data shows that the number closely tracked the price until mid-2020. In other words, increasing adoption of the biggest cryptocurrency may have steered its price. However, it poorly explains Bitcoin’s recent rise to new all-time highs.

For Ether, the number of verified smart contracts on the Ethereum blockchain tends to be a solid price predictor. Because the number of active users on the blockchain represents the popularity of Ethereum as an ecosystem of decentralized applications (DApps), there is a case for using the number as a valuation tool for ETH. The prices of other blockchains designed to create DApps — such as Polkadot, Neo or EOS — are more correlated with Ether’s price than with their own network’s development activity, surprisingly.

The other tokens analyzed in the report include payment coins such as Dash, Stellar’s Lumen 

XLM

$0.089

 and Litecoin 

LTC

$90.26

. These tokens’ prices are dependent on Bitcoin’s movements, whereas financial attributes such as transaction volume or velocity — which were expected to drive the price of payments coins — barely impact the price of the assets.

Furthermore, the report surmises that the price movements of crypto exchange tokens are driven more by market sentiment than by their use on exchanges. The only cryptocurrency that appeared to respond to Bitcoin and Ether prices directly was Binance Coin 

BNB

$307

, while the primary driver for Huobi Token (HT) was the exchange’s number of Twitter followers. Nevertheless, the market-value-to-realized-value (MVRV) ratio proved to be a fundamental value driver for three out of five coins in the exchange token category, according to the report, which suggests that the ratio is a relatively good driver for this type of cryptocurrency.