How Does the Terminal Value Calculation Change When Valuing a Crypto Network?
In traditional finance, terminal value (TV) assumes a perpetual growth rate of cash flows beyond the forecast period. For crypto networks, the TV calculation is highly speculative due to the uncertainty of long-term adoption and technology obsolescence.
Investors must carefully select a conservative perpetual growth rate, often close to zero, or use an exit multiple based on comparable network metrics. The choice of TV method significantly impacts the final valuation, as the TV often represents a large portion of the total DCF value.
Glossar
Terminal Value Calculation
Valuation ⎊ Terminal Value Calculation, within cryptocurrency derivatives and options, represents the estimated worth of an asset or portfolio at the end of a defined projection period, crucial for pricing and risk assessment.
Terminal Value
Valuation ⎊ Terminal Value, within cryptocurrency derivatives and financial modeling, represents the calculated present value of all future free cash flows projected to occur beyond a defined forecast period.
Gordon Growth Model
Model ⎊ The Gordon Growth Model, a cornerstone of dividend discount valuation, provides a simplified framework for estimating the intrinsic value of an asset ⎊ particularly relevant when assessing cryptocurrency projects with tokenomics involving dividend-like distributions or staking rewards.
Perpetual Growth Rate
Momentum ⎊ Perpetual Growth Rate, within cryptocurrency derivatives and options trading, represents an annualized rate reflecting the sustained expansion of an asset's value, often utilized in perpetual contracts to determine funding payments and assess long-term viability.