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An Economic Primer on Valuing Cryptocurrencies
Startups and projects are raising more and more money through initial coin offerings. At the beginning of 2018, the aggregate market capitalization of cryptocurrencies hit an all-time high of more than $800 billion; and despite the recent decline in value, some foresee this market hitting $1 trillion by year’s end. The increasing popularity of cryptocurrencies has fostered much legal debate, and many enforcement actions have been taken in recent months. Manager Simona Mola and Senior Economist An Wang contribute to the debate in their article by offering an economic perspective on cryptocurrencies—in particular, what drives the value of a cryptocurrency. From an economic standpoint not all cryptocurrencies are created equal, however, and understanding their differences has crucial implications on their valuation.