VC’s say XCH only $24?!

Written By: HumbleFarmer | Catagory: Analytics​ | Date: 2021-06-23

https://www.bloomberg.com/news/articles/2021-05-24/blockchain-startup-chia-nabs-500-million-valuation-eyes-ipo 

At the time of the $500mil valuation the market cap of XCH was close to $500mil.  It’s that simple.  Their valuation was directly correlated to the total value of tokens in circulation.  

This was a fair way to gage company value.  If the Prefarm valuation as tied to market price had been included, Chia Network would have easily been north of $10billion.  This was not advantageous to the VC’s who wanted a greater equity share.  Nor was this advantageous to Chia Network who desired a fresh war chest for greater progress.  

Valuing Chia Network based upon circulating supply of XCH seems very fair considering the circumstances.  So no, that does not mean the tokens in the prefarm are only worth $24.  The real value of that asset pile has yet to shine. 

A $24 Chia price would be excessively low considering Netspace growth and the difficulty in getting XCH increasing every single day.  Yes, XCH does have a high inflation rate.  However, they are still getting harder to obtain by the day.  Once pooling comes they will be even harder to obtain.  Due to these factors, as long as Netspace grows it is essentially growing a natural price bottom.

In a sense, the self feedback loop has already started.  When the XCH price is high, Netspace chases the price to catch up.  As Netspace increases so does the difficulty of getting rewards.  This increased difficulty acts as a floor to profitable farming.  Whether it is sunk costs into farming equipment or simply the time it takes to get rewards.  Scarcity of rewards keeps increasing.  There is no way anyone will get more XCH in the future without a massive investment of new resources or outright buying them on a market.  This unknown level can be considered the market floor.  

The market floor is dynamic, just as a natural market ceiling is also dynamic.  It needs to be understood that markets are largely inefficient and each market on Earth slowly develops and matures in efforts to be more efficient.  So note, the XCH price will sometimes fall below this natural price floor.  But it may also go far higher than what a natural Bid cap should be.  We’ve seen this with Bitcoin multiple times.  

The BTC price falls below the floor price that justifies mining BTC.  Usually this leads to a cleansing of the market and not only weaker hands but weaker miners and business models are flushed out.  This can be painful for some but is overall very healthy for ecosystem growth.  It also gets more acute when halvings take place. 

It should be noted this is completely different than when a true Bid for the tokens comes into play (halvings can help too).  When that starts, the price will go up again and pop the whole cycle off one more time with the general long-term trend of slowly climbing higher.  All this is occurring and will continue to occur despite the “high inflation rate”.   If anything the high inflation rate and Prefarm were half designed to keep a lid on runaway prices so true adoption can take place.

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