Venture Capital Egirl Capital: Those worthless things, MEME is actually everything to it

Author | Egirl Capital

Compiled by | Rhythm BlockBeats

Finding undervalued assets through asset pricing models might be the favorite pastime of traditional finance professionals. When they see Bitcoin, this "garbage" that generates no cash flow, skyrocketing in price and surpassing Berkshire Hathaway in market capitalization, they might sourly remark, "This Ponzi scheme will end soon."

Memes, narratives, speculation—these factors, which were once not accounted for in intrinsic value, are slowly making people feel that these might actually represent true value. We still cannot accurately price emotions, feelings, and all intangible factors, so their imaginative space is infinite. To the moon? That's too close. In this era of increasingly popularized investment, the intrinsic value contributed by intangible factors will grow larger, and this portion of value will be difficult to measure.

This article comes from Egirl Capital, where the author analyzes the value deviation caused by memes from the perspective of intrinsic value composition.

The inspiration for this article comes from CL's latest article on memes.

Especially in the first part, it reveals that many models are essentially memes, and even "income" is one of them.

Wait, why are income and valuation considered memes? Aren't they all fundamental analysis?

So, when is a price-to-earnings ratio considered cheap? And when is it considered expensive? Is it the same in every case? Who decides the different special circumstances? Who categorizes these different situations?

The price-to-earnings ratio is a meme. But why? Because when the price-to-earnings ratio is too high, there is no natural law forcing its price to drop, and when the price-to-earnings ratio is too low, there is also no natural law forcing its price to rise.

Overvaluation or undervaluation is actually a typical traditional finance meme, one that many investors collectively believe in, thus turning their belief in valuation into a self-fulfilling prophecy.

This is not to say that memes have no logical support at all, but their outcomes depend on participants' beliefs in these memes, rather than any natural law.

Can you think of any other traditional finance memes? There are actually many!

Here’s a great example that I believe you’ve heard before: Bitcoin generates no cash flow, so it’s worthless.

Have you fallen in love with traditional finance memes? Congratulations, you’ve earned the honorary airdrop of NGMI (Not Going to Make It) and HFSP (Have Fun Staying Poor), which you can add as a suffix to your name on LinkedIn!

In the post-Benjamin Graham era, the art of investing can be simply understood as finding assets whose intrinsic value is below the current market price, thus obtaining a "margin of safety." (https://www.investopedia.com/terms/i/intrinsicvalue.asp)

Therefore, when people look at asset prices, they wonder what factors cause their prices to rise or fall, and what causes their prices to deviate from their intrinsic value.

If the price is above intrinsic value—avoid this asset.

If the price is below intrinsic value—explore this asset.

I believe we can derive the following formula:

*(Price = Intrinsic Value * Deviation Factor)*

The intrinsic value in the formula refers to "a standard for measuring the value of an asset," which we usually obtain by calculating its realizable net asset value, using discounted cash flow or other models.

The deviation factor (including liquidity, market volatility, speculative factors, etc.) can have a positive or negative impact on intrinsic value. Ultimately, multiplying the two yields the market price of the asset.

However, the failure of this model lies in the fact that we can clearly see that there are many assets in this world with an intrinsic value of "0," so regardless of what their deviation factors are, their prices remain zero.

However, the prices of these assets are not actually 0.

Why?

Scam? Ponzi? Or do they actually have high intrinsic value?

I believe the reason traditional finance is so eager yet quickly abandons the crypto industry is that they fundamentally cannot accept that things with no intrinsic value have not gone to zero in price.

Why hasn’t Dogecoin gone to zero? Why are some NFTs worth so much?

For traditional finance folks, this is simply unreasonable, utterly absurd!

After analyzing this information through their existing cognitive models, they conclude: this must be a scam.

Their brains inputted "this thing's intrinsic value is 0," and then they discover that this thing actually has a non-zero price?

Their brains: "ERROR 404." "Logic not found." Their brains exploded.

This is the world of traditional finance.

But it is also different.

Welcome to the world of clowns.

In this world, governance tokens that have no value are actually quite precious, even if no one uses them for governance.

In this world, JPEG images are valuable because we love art (or perhaps because we hate art).

Pollock's works look like colorful bukakke; don’t you like them?

Screw you! Who cares about your opinion? Others who are richer than you disagree with your view. Prices are set by buyers, not by disinterested outsiders.

Crypto Punks' 69th set of replicas, wearing various fast-food hats, in a boring yacht club, deployed on a garbage chain—you must think this junk is worthless.

But you are wrong; who cares what you think? Others who are richer than you disagree with your view. Prices are set by buyers, not by disinterested outsiders.

These owners might not even "like" these NFTs; they don’t care about the rarity, characteristics, history, community, etc., of these NFTs. In fact, the more absurd it is, the more valuable it might be. Nothing expresses "Look at me, I'm not just rich; I'm truly TM rich!" better than owning a JPEG rock—at least for now, unless something even more absurd comes along.

The problem with traditional finance models in the "old world" is that they cannot accept our pure imagination, nor can they understand why we buy these "worthless" memes and drive them to a market cap of over a billion (like Dogecoin, which has a market cap in the billions).

As long as the retail investors are still rushing in, there will always be speculative opportunities.

We need a new model, one that can embrace this entirely new clown world. We need something to explain why memes are valuable.

Thus, I propose a simple revised model to correct the ancient, mysterious traditional finance view of memes, which we call the price proposition of G:

*(Price = Intrinsic Value * Deviation Factor + Speculative Premium or Discount)*

To put it more simply, we just added an "incomprehensible" component.

(Price in the Clown World = Price in the Traditional Finance World + Speculative Premium or Discount)

The intrinsic value in the formula refers to "a standard for measuring the value of an asset," which we usually obtain by calculating its realizable net asset value, using discounted cash flow or other models; this part may also be 0.

The speculative premium or discount refers to the positive or negative value brought by hype, attention, and other intangible factors; this value may have no basis, but it might represent all its value in the clown world.

I’m sure at this point, many will say that the price of their unique junk asset is not primarily due to speculative premiums, but rather its inherent value.

If it cannot be measured, is it still real?

Aesthetics, "community," "good leadership and good track record," Haskell, rarity, etc.

So, what should we do? Make a list and add $100 million to the market value of each attribute?

That sounds absurd, doesn’t it?

However, I’m not here to tell you how to price non-intrinsic value; rather, I want to illustrate that speculation does indeed have some value and should not be overlooked.

However, I do believe that in the future, the characteristics we currently classify as "speculative (memes)" will have a dedicated model to price them and will be included in the intrinsic value of assets.

This might explain the phenomenon of "sell-offs after mainnet launches," which plagues many projects that deliver according to their roadmaps. The infinite imaginative space of the future has now been compressed into a real, feasible path. From now on, the valuation of projects is no longer supported by infinite imaginative space; it now only has a small portion of what was once in the imaginative space.

When you can measure a project's user count and activity, you can no longer be overly optimistic about that project.

When you cannot measure any data, the moon is not the limit for that project; it might fly beyond the edge of the universe.

So, are memes and NFTs really worthless?

I’m quite sure I can sell millions of Dogecoins in a minute.

I entered this industry from traditional finance a long time ago, but initially, I really struggled to understand this "worthless" meme culture.

However, I have now fully embraced the clown world we live in.

You cannot change the wind and the world, but you can adjust your sails, and perhaps then you can navigate through the clown world. Friends, I wish you smooth sailing!