Token Valuations vs Company Valuations — Old vs new Economy
By: Locktrip.Com, Loc Token, Official Blog
Tags: Investing, Locktrip, Ethereum, Crypto, Bitcoin

When it comes to crypto projects, speculation is always part of the game. Our community is discussing future token prices all the time and many have different expectations.

While LOC tokens are not meant to be an investment, their price movement is still an important factor (for example for people who want to buy tokens now, in order to book hotels at a discount in the future).

In an attempt to build analogies, some try to compare the market cap of token to the ones of company stocks. However this can be very misleading.

Here is why…

First of all, we have to think about how companies are valued. Usually, you take into account the annual profit of the company and try to predict potential annual profits in the future.

So, profit is the most important factor, because you rely on dividends as a return of investment.

Stock prices are mainly driven by the earnings of the company

How do LOC tokens compare? Well, we at LockTrip aim to operate at break-even. So no profits are planned. But the great thing is, that the LOC price is directly linked to turnover and not to profit.

This is because every booking will automatically lock out the corresponding LOCs from circulating supply for the time between reservation and check-out. This means, that every $ in turnover will influence the LOC price positively.

LOC prices are mainly driven by the turnover of the service

So far, you probably knew all of this already.

Here comes the implication…

It is easier to achieve and scale turnover compared to profit. While shares represent a strict ratio between profit and price (ideally), LOC tokens function the same at every price level.

→ Example: If the share price becomes too high, people will sell immediately, because the share has no other purpose than securing the owner dividends. If the price goes above a certain ratio (potential yield of dividends), it is rationally correct to sell, and profit more than future dividends would yield.

→ For LOC tokens, the price itself is irrelevant regarding the purpose of the token. You can use them the same way at $1 and at $10. One can argue that you can also come up with a ratio between LOC price and turnover. However, as there are many other incalculatable factors contributing to the LOC price, and as the purpose of the LOC token is not to deliver dividends, it is yet to be seen how useful such ratios will turn out to be.

This means, that the upward limits are very difficult to predict and do not necessarily have to match the ones of shares. You can only be certain of lower limits based on turnover.

3. Shares do not get lost or forgotten, while LOCs do → Deflation over time

4. 100% of the circulating shares are actively part of the market valuation just by their pure existence (through dividends). For LOC tokens, only the ones tradeable on the exchanges are determining the total market valuation.

This means, that while the effective supply of shares is always constant (because every share will get dividends), effective supply of LOC tokens does change constantly (because only the LOCs on the market can satisfy utility demand, while passively stored tokens are not taking part).

→ Shares have constant effective supply but changing demand

→ LOC tokens have changing effective supply and changing demand

→ Example: If only 33% of all LOCs are actively available, total market cap becomes 3x as much, compared to when 100% are available.*

All those aspects make a comparison between company valuations and LOC token valuations very inaccurate. Predicting new business models with old tools will result in wrong expectations.

LockTrip is the first marketplace with 0% commission where you can save on average 20% on your hotel and rental bookings compared to anywhere else. Learn how to buy LOC tokens to enable access to our marketplace and its lower prices here!

*Explanation: