How Does the Quantity Theory of Money (MV=PQ) Relate to Token Valuation?
The Quantity Theory of Money (MV=PQ) links the money supply (M) and its velocity (V) to the price level (P) and the quantity of goods/services (Q). In crypto, M is the token supply, V is the token's turnover rate, P is the token price, and Q is the value of network services.
Investors can rearrange this to estimate the required market cap (M P) by forecasting the network's total value of transactions (P Q) and the token's velocity (V). A lower velocity implies a higher required market cap for the same level of economic activity (P Q).
Glossar
Value of Network Services
Network ⎊ The foundational layer underpinning Value of Network Services within cryptocurrency, options, and derivatives contexts represents a distributed ledger technology or a collection of interconnected nodes facilitating transaction validation, data storage, and consensus mechanisms.
Total Value
Magnitude ⎊ The aggregate valuation of all outstanding positions within a given cryptocurrency, options, or derivatives portfolio represents Total Value.