Book value is a simple concept with an important application in evaluating a business. Book value is the total value of everything the business owns: the building its headquarters occupies, the office equipment, factories and machines, trucks and cars, etc. It is the value of anything titled in the name of the business, minus any debt.
The idea behind book value is just as simple. If the owners of the business shut the doors, sold everything and paid off all the debt, book value would be left over. So, book value is the floor of what the business is worth. The market value is typically more because of things like existing customers and a good reputation, but book value should be the absolute minimum value of a business.
So, What’s Market Value?
To answer to the title question it is necessary to answer this second question. Market value is the value of a business assigned by an organized marketplace, like a stock exchange. The price per share multiplied by the number of shares outstanding gives the market value. In the cryptocurrency world this means the number of coins issued multiplied by the trading value of each coin.
So, Bitcoin has a market value – also called a market capitalization or market cap – of over $105 billion USD at a coin price of about $6,300. However, the most popular cryptocurrency in the world has no book value. There are no assets that could be sold, no proceeds to be split among the coin holders if the price of Bitcoin collapses for some reason.
Why This Matters
With no underlying assets, the price of Bitcoin has no floor. With no book value, there is no way to use traditional value assessment tools that investors like Warren Buffett have used for decades. Since Bitcoin has no operating business generating revenue, there is no way to use discount cash flow models to estimate the value. There is only the market value and estimates of what this will be in the future.
This is typical of both new markets and financial bubbles. However, as markets mature well established business methods and valuation models start to emerge. This is happening in the cryptocurrency market as new coins are issued that fund a bona fide business activity. It is also behind the emergence of one of the first cryptocurrencies, Smartlands, designed to be valued based on actual physical assets.
Easy as A-B-T
A coin or token that has a pool of physical assets – a book value – is an Asset Based Token (ABT). Smartlands has engineered the legal mechanics required to take agricultural assets and use them to collateralize a cryptocurrency. This is similar to a farmer using land as collateral on a loan from a bank, but much more effective.
The Smartland Token (SLT) is the next step forward for the cryptocurrency market. It combines the business valuation and securitization methods of capital markets with the governing ethos of a true cryptocurrency. This philosophy of community is expressed in the ultimate goal of SLT: alleviate world hunger.
One Coin, Three Markets
SLT will reduce world hunger by bringing technology to the small farmer, who accounts for 80% of global food production. This democratization of tools and techniques which were previously available only to large farming corporations will dramatically increase food production and the economic position of the small farmer.
These positive impacts come from improving access to capital for the small farmer, who is typically limited to a local bank or government program as sources of loans to improve production. The SLT will provide capital along with the wisdom of the investment community to effectively use that money.
While it positively impacts agriculture and finance, SLTs will have a profound impact on the cryptocurrency market. Because it should never fall below the value of the underlying agricultural assets, the SLT will be a remarkable storehouse of stable value. This has never been seen in the cryptocurrency world.
All markets mature or they die out. This is one of the fundamental rules of finance. The power of blockchain and cryptocurrencies is too great to simply fade away. The emergence of ABTs like Smartlands or other coins that finance operating businesses is an expected, and welcomed, development for everyone involved in agriculture, finance or cryptocurrencies.