One of the most difficult challenges in finance is how to price crypto assets. Bonds pay interest. Stocks pay dividends. What exactly do crypto assets pay? Well, other people value them too, but what does that depend upon? How can crypto valuations be connected to something real?
The executive summary of my current thinking goes something like this: The value of crypto assets comes from a few core uses — plus, and this is crucial, how much investors value the volatility of crypto assets. It is this latter feature which explains much of the day-to-day price shifts of crypto.