A Framework for Valuing Cryptocurrencies
Cryptocurrencies are unique in that all transactions across the blockchain are publicly visible. This data availability should make it easier to take a fundamental approach to valuing cryptocurrencies. Since the crypto market is largely a momentum market, that is not the case. As the digital asset market continues to mature and fundamentals carry more weight, it is important to think about ways to value this new asset class. In this report we discuss potential valuation frameworks for different types of cryptocurrencies, including disinflationary store of values, smart contract platforms, and crypto applications.
Before we get started, just a reminder that all cryptocurrencies are relatively new and due to their novel and unproven nature, reliable methods for estimating performance may not be available. The regulatory landscape for crypto is still evolving. Cryptocurrencies may be subject to potential encryption breaking, illiquidity and increased risk of loss. Theft, scams and fraud have been a factor to deal with, and if you decide to invest in crypto directly remember that there may not be an effective way to recover assets if they're stolen or lost. Investing in cryptocurrencies involves risk, including the risk of total loss of principal invested. Cryptocurrencies such as bitcoin are highly volatile, are not backed or guaranteed by any central bank or government; are not deposits; are not FDIC insured; are not SIPC protected; and lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Spot markets on which cryptocurrencies trade are relatively new and largely unregulated, and therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments. Due to the high level of risk, investors should view digital currencies as a purely speculative instrument. Additional risks apply.
Disinflationary store-of-value cryptocurrencies
A useful way to determine near-term valuation for bitcoin is to compare its price to the cost of producing a bitcoin. The primary costs of producing bitcoin are energy and semiconductors. Miners with the best equipment are referred to as efficient miners, while those with potentially older equipment are referred to as inefficient miners. During drawdowns, miners may temporarily pause production as prices fall below their production value. Using the ratio of bitcoin's price to inefficient miner production prices has historically been a way to determine if bitcoin is more attractive or less attractive in the near term. According to data from Glassnode as of March 16, 2026, in the deepest bear markets, bitcoin has fallen to 0.5x inefficient miner production, which has also typically been at or below efficient miner production. This is illustrated in the chart below which captures bear markets through Jan. 1, 2017 through March 16, 2026. A range of 0.75x to 2x may be an appropriate range for valuing bitcoin in the near term.
Schwab has multiple ways into crypto.
Bitcoin's price vs. inefficient miner production price
Source: Charles Schwab, Glassnode, data from 1/1/2017 through 3/16/2026.
Bitcoin is represented as its spot price against the US Dollar. For illustrative purposes only and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. Time period of January 2017-present was used to provide a longer-term period that did not include the very early years, which are likely no longer representative from a valuation perspective. Past performance is no guarantee of future results. On March 23rd, 2026, bitcoin's price was 44% below its October 2025 all-time peak, according to data from Bloomberg.
XRP's primary use case has historically been a currency within a payments system—so we track its transfer volume (the U.S. dollar value of XRP transferred on-chain). Since 2021, it has traded between 0.05x and almost 0.6x its market cap. A reasonable valuation range one might watch would be 0.1x to 0.4x. While XRP may be valued more like a smart-contract platform as its use case changes, in the meantime we feel this is the best way to quantify its usage.
Market capitalization to transfer volume
Source: Charles Schwab, Glassnode, data from 1/1/2021 through 3/162026.
For illustrative purposes only and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. The time period of 1/1/2018-Present was used to provide a longer-term history of this valuation metric. Valuations from prior to 2018 are unlikely to repeat in the future. Trailing 365 Day Transfer Volume is the sum of the previous 365 days total US Dollar value of XRP transferred on-chain. The market cap to 365 day transfer volume ratio is a relative value metric that aims to quantify how expensive XRP is relative to the amount of activity happening on the XRP Ledger. Past performance is no guarantee of future results. On March 23rd, 2026, XRP's price was 61% below its July 2025 all-time peak, according to data from Bloomberg.
Smart-contract platforms
We previously discussed frameworks for determining value such as market cap to "GDP" (sum of all fees generated on a smart contract blockchain network) and market cap to total-value locked (TVL, the US Dollar value of assets deposited on a blockchain). This can help provide a point-in-time idea of how expensive or cheap a smart-contract platform's cryptocurrency is. Taking this a step further, we can incorporate forward estimates of growth into these metrics, similar to a price-to-earnings-growth (PEG) ratio. A PEG ratio a relative value metric for stocks, where an investor determines how much they are paying for forward expected growth.
Over the past four years, ether has been more attractively valued near or below 40x, and less attractive near or above 70x
Source: Token Terminal, Charles Schwab as of 3/16/2026.
For illustrative purposes only and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. On March 23rd, 2026, ether's price was 57% below its August 2025 all-time peak, according to data from Bloomberg. Past performance is no guarantee of future results. "GDP" is the sum of all fees generated on a blockchain network including stablecoins, lending, liquid staking, trading and infrastructure.
While some crypto data providers provide historical figures for these metrics, for projecting forward metrics we feel there is a specific approach that should be taken. First, we would look at a blockchain ecosystem's core usage by understanding its TVL. You can map this data out historically over different periods ranging from days to quarters or years. Then we look at the fees generated across the blockchain ecosystem, so we can see how assets deposited on that ecosystem (TVL) actually translate into fees. On Ethereum, for example, most applications fees have translated to around 1% of TVL.
Some applications don't require locking assets in them, which is why we convert everything to fees. Next, we would look at fees and see the breakdown across the ecosystem.
With this information we can determine what are the core usage areas of a smart contract platform. We can also determine what is fee activity that is unlikely to continue in the future. For example, Ethereum's revenue share is mostly divided between stablecoins, liquid staking, lending and trading applications. Several years ago, non-fungible tokens (NFTs) were a large driver. We would not expect that to continue moving forward.
Ethereum's largest usage cases have been stablecoins, lending and liquid staking
Source: Charles Schwab, Token Terminal as of 12/31/2025.
For illustrative purposes only and are not intended to be, nor should they be construed as, a recommendation to buy, sell, or continue to hold any investment. "GDP" is defined as the sum of all fees generated on a smart contract blockchain network.
Based on this data, we might believe that liquid staking and lending are likely to grow along with ether's market cap. As a result, we might assign a market growth rate to them. Stablecoins might grow faster or slower, depending on adoption and regulatory matters. Tokenization of real-world assets (RWA) is one of the biggest growth opportunities for smart contracts and so incorporating that into the fee forecast would be important.
Once you have modeled out these forecasts, you can establish a growth rate, which can then be used with the market cap to "GDP" ratio in a similar way a PEG ratio would be used.
Cryptocurrencies and infrastructure
The next step is to look at applications built on top of the foundational networks. Our preferred method of valuing them is by dividing their market cap by fees generated across all smart contract platforms. Conveniently, if the smart contract fees have already been forecast, the product and infrastructure fees have also been forecast. Now we can take their historical market cap to fees ratio and incorporate forward growth estimates into your valuation.
Summary of important metrics to understand when investing in cryptocurrencies
Adding valuation to our other fundamental frameworks
Over the past few months, we have published reports that address investing in crypto from different angles. We identified macro factors that can impact bitcoin's and ether's prices, we built an industry model, and we established the key debates for four of the largest cryptocurrencies. Adding valuation to these frameworks is the final step required to help evaluate where to invest in cryptocurrencies.
Digital currencies, not equities or bonds
It's important to point out that cryptocurrencies are digital currencies, not equities or bonds, and therefore do not have terminal values. Using these valuation metrics, investors can take a relative value approach to help evaluate what investment action to consider or the underlying cryptocurrency.
It is also important to point out that valuations are not predictive—in any market. A stock can remain overvalued or undervalued for a long time, and there is no reason the same should not apply to cryptocurrencies. Regardless, using these different metrics may help investors determine where the most opportunity is at one time, given current valuations.
Finally, note that until the crypto market is more fundamentally driven, it is likely to remain a momentum market, and valuations may not be as useful. That said, in the near term we feel it makes sense to use trailing metrics for these different valuation metrics. As more fundamental investors enter the crypto market, there is the potential that these cryptocurrencies will discount forward expected growth rates, but as of now, that is not the case.
Schwab has multiple ways into crypto.
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This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.
All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Past performance is no guarantee of future results.
Investing involves risk, including loss of principal.
Cryptocurrency-related products carry a substantial level of risk and are not suitable for all investors. Investments in cryptocurrencies are relatively new, highly speculative, and may be subject to extreme price volatility, illiquidity, and increased risk of loss, including your entire investment in the fund. Spot markets on which cryptocurrencies trade are relatively new and largely unregulated, and therefore, may be more exposed to fraud and security breaches than established, regulated exchanges for other financial assets or instruments. Some cryptocurrency-related products use futures contracts to attempt to duplicate the performance of an investment in cryptocurrency, which may result in unpredictable pricing, higher transaction costs, and performance that fails to track the price of the reference cryptocurrency as intended. Please read more about risks of trading cryptocurrency futures here.
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