Understanding the value of cryptocurrencies isn't as straightforward as evaluating traditional stocks. With stocks, investors analyze tangible metrics like company assets, revenue, profit margins, and growth trends—clear financial indicators that shape valuation. In contrast, crypto assets often lack direct income streams or conventional financial statements, making their valuation more abstract and heavily influenced by sentiment, adoption, and network effects.
However, in a recent research report, Goldman Sachs economists Zach Pandl and Isabella Rosenberg explored how traditional equity valuation frameworks—particularly those tied to network value—can be adapted to assess digital assets like Bitcoin and other major cryptocurrencies. Their findings offer a fresh lens through which investors can examine the so-called "fundamentals" of blockchain-based networks.
Rethinking Value: From Gold to Networks
Historically, Bitcoin has often been compared to gold—a digital store of value with limited supply. While this analogy holds some merit, Pandl and Rosenberg point out a crucial distinction: gold lacks an active user network. It doesn’t grow in utility based on how many people use it.
In contrast, the value of platforms like Facebook or other social media companies is deeply tied to their user base—the so-called network effect. The more users engage, the more valuable the platform becomes. The Goldman analysts argue that cryptocurrencies may follow a similar logic: their market value could be intrinsically linked to the size and activity of their underlying blockchain networks.
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Measuring the Network: Blockchain Addresses as Users
One practical approach to estimating a crypto network’s user base is analyzing the number of unique blockchain addresses. While not a perfect proxy (since one person can control multiple addresses), it provides a measurable indicator of network participation.
Goldman’s team studied eight major cryptocurrencies, comparing each asset’s market capitalization (calculated as circulating supply multiplied by price) with its number of active addresses. Their analysis revealed a strong correlation between market value and network size.
More specifically, they observed that market cap scales non-linearly with network growth—in fact, the relationship appears to follow a power law. For instance, if a network doubles in size, its market cap doesn’t just double; it increases by a factor closer to the square of user growth. Historical data suggests an average scaling exponent of around 1.4, meaning:
Market Value ≈ (Number of Users)^1.4
This mirrors how tech platforms are valued: user growth doesn’t just add linear value—it compounds it.
Bitcoin’s Valuation Puzzle: Market Cap vs. Network Growth
Despite this general trend, Bitcoin presents an anomaly. According to Goldman’s analysis, Bitcoin’s market capitalization has significantly outpaced its network expansion.
Between 2018 and recent years:
- Bitcoin’s market cap rose by approximately 520%
- Meanwhile, its network (measured by active addresses) grew by only 60% to 100%, depending on the starting point
If valuation were strictly tied to user growth following the 1.4 power rule, Bitcoin’s price increase should have been in the range of 90% to 150%—far below the actual surge.
This disconnect suggests one of several possibilities:
- Bitcoin was undervalued in 2018
- Bitcoin is overvalued today
- Or, non-fundamental factors—like speculation, media hype, macroeconomic conditions—are playing an outsized role
Beyond Speculation: What Drives Real Network Value?
A critical insight from the report is that not all network activity is equal. A spike in blockchain transactions or new addresses doesn’t necessarily reflect organic adoption. Often, it’s driven by speculative trading—especially during bull markets.
As Pandl and Rosenberg caution:
"Increased blockchain activity may reflect speculative behavior rather than fundamental improvements in utility."
For example, when prices rise, more people create wallets and trade frequently—not because they’re using Bitcoin for payments or decentralized applications, but because they expect price appreciation. This inflates network metrics without adding sustainable economic value.
👉 See how real adoption differs from speculative noise in today’s crypto markets.
True network strength comes from non-speculative usage: everyday transactions, remittances, DeFi interactions, or institutional custody solutions. These use cases build long-term resilience and justify higher valuations beyond mere hype.
The Role of Market Sentiment
Sentiment plays a powerful role in crypto markets. The perception of Bitcoin as “digital gold,” a hedge against inflation, or a revolutionary financial tool influences demand independently of user growth.
Moreover, cultural narratives—such as “getting rich quick” or FOMO (fear of missing out)—can drive short-term price movements disconnected from fundamentals. These psychological drivers are difficult to quantify but undeniably impactful.
That said, on-chain activity remains a vital signal. Even if sentiment fuels short-term swings, sustained growth in unique addresses, transaction volume, and wallet diversity reflects genuine adoption—a core component of long-term value.
FAQs: Understanding Crypto Fundamentals
What are crypto fundamentals?
Crypto fundamentals refer to measurable aspects of a blockchain network that indicate health and potential value—such as active users, transaction volume, developer activity, and real-world usage—not just price or market cap.
Can you value crypto like a stock?
Not exactly. Unlike stocks, most cryptocurrencies don’t generate cash flow or profits. However, frameworks like network effects and Metcalfe’s Law (value proportional to the square of users) offer alternative valuation models.
Why does Bitcoin’s price rise faster than its user base?
Speculation, macroeconomic factors (like monetary policy), institutional investment, and media attention often drive price surges independently of organic adoption. This creates temporary misalignments between price and fundamentals.
Are active addresses a reliable metric?
They’re useful but imperfect. One person can hold multiple wallets, and bots or exchanges can inflate numbers. Analysts often combine address data with transaction value, wallet age, and geographic distribution for better accuracy.
What causes sustainable crypto value?
Long-term value emerges from utility—such as cross-border payments, financial inclusion, smart contracts, or decentralized identity—not just trading volume or speculation.
How can I track crypto fundamentals?
Tools like Glassnode, CoinMetrics, and on-chain dashboards provide insights into network activity, supply distribution, exchange flows, and more—all key indicators of underlying strength.
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Final Thoughts: Fundamentals as One Piece of the Puzzle
Goldman Sachs’ research underscores that while traditional financial metrics don’t directly apply to crypto, analogies from tech and network economics do. The relationship between user growth and market value—especially its super-linear nature—offers a compelling framework for assessing digital assets.
Yet Bitcoin’s deviation from this model reminds us that crypto markets are still maturing. Prices reflect not only fundamentals but also narrative-driven sentiment and macro forces.
For investors, the takeaway is clear: focus on sustainable adoption, not just rising prices or temporary spikes in activity. True value lies in networks that solve real problems and grow organically—not just those attracting short-term speculation.
As the ecosystem evolves, blending quantitative on-chain analysis with qualitative understanding of use cases will become essential for navigating the future of digital assets.