Why Is Terminal Value Estimation Particularly Challenging in Crypto DCF?
Terminal value (TV) represents the value of all cash flows beyond the explicit forecast period, assuming a stable, perpetual growth rate. It is challenging in crypto because the long-term viability, competitive landscape, and regulatory environment for most protocols are highly uncertain.
The stable, perpetual growth rate assumption is often questionable. Analysts must use a very conservative growth rate or a lower exit multiple, often leading to a wide range of possible TV estimates, which can account for a large portion of the final valuation.
Glossar
Terminal Value Estimation
Estimation ⎊ The terminal value estimation, within cryptocurrency derivatives and options trading, represents a forward-looking valuation of an asset's intrinsic worth beyond the explicit forecast period.
Perpetual Growth Rate Assumption
Assumption ⎊ The Perpetual Growth Rate Assumption (PGRA), within cryptocurrency derivatives and options trading, posits a constant, long-term rate at which an asset's value will increase.