Exchange Token Evaluation Series: BMX Valuation Report
BitMart is a global digital asset trading platform established at the end of 2017. In this report, we analyzed the comprehensive application scenarios and historical data of BitMart Token (BMX) , as well as the short-term economic value of BMX from quantitative and qualitative perspectives.
Based on the existing market data and assumptions of key parameters within reasonable range, we mainly adopted Fisher's equation, Discounted Cash Flow (DCF) and Price-Earnings (P/E) ratio method to calculate the value change of BMX in the following three quarters. As the assumptions of BMX economic growth rate, discount rate and turnover rate in the valuation model is relatively subjective, we conducted parameter stress tests for the fourth quarter of 2019 to reflect the impact of different market fluctuations on BMX value.
In addition, the BMX P/E ratio is between 0.6 and 1.0 calculated based on current platform trading fee profit. Thus, we believe that the exchange token value is underestimated to some extent. Assume that the quarterly discount rate, trading volume growth rate and turnover rate are 4%, 20% and 20%, respectively, and the monthly market circulating volume is constantly reduced；exclude the additional profit other than the trading fee; ignore the new project launching fee and trading fee discount lockup. The price of BMX in the fourth quarter of 2019 will be likely reaching 0.087 USD according to the quantitative calculation.
1. About BMX
1.1 Introduction of BitMart Exchange
BitMart is a global digital asset trading platform established at the end of 2017 and officially launched on March 15, 2018. The platform now offers 254 trading pairs and 137 types of cryptocurrencies, with an average daily trading volume of around $400 to $600 million USD.
Table 1-1 Number of trading pairs offered by BitMart platform (2018.03-2019.08)
Source: BitMart, TokenInsight
Currently, BitMart offers digital asset spot trading, futures contract trading, OTC trading currency trading, USD fiat trading, OTC market services, and issuance service of security token in the U.S. primary market. BitMart announced that the construction and development of futures contract trading and decentralized trading platform will be launched in the future.
1.2 Introduction of BMX
1.2.1 Token distribution and lock-up mechanism
BitMart Token (BMX) is an exchange token issued by BitMart trading platform in July 2018, with total volume of 1,000,000,000. The specific release and distribution mechanism of token is shown as below:
Table 1-2 BMX Token Distribution
Source: BitMart, TokenInsight
Among them, tokens held by the founding team will be locked up and released throughout three years. Initial release: 25% (75 million), one-year later: 25% (75 million), two-year later: 25% (75 million), three-year later: 25% (75 million). According to the interview with the founding team, although a percentage of BMX token has been unlocked so far, the team has not sold any BMX, which has been verified by the onchain data. In addition, the team does not has plan to reduce its holding of BMX in the mid-term, which reflects the team's optimistic attitude towards the platform and projects.
Based on the on-chain public data, among the originally issued 1 billion BMX, 242,267,285 BMX were destroyed by transfering to the black hole address due to unsubscription, which belonged to specific participants in the original issue plan.
1.2.2 Market performance
Table 1-3 BMX price and market cap trend (2019.06-2019.08)
It can be observed from the historical data that the price and total market cap of BMX have been at a low level from December 2018 to March 2019, and started to climb since the end of March, reaching the peak in April. After that, it fluctuated around 0.30USD with relatively high 30-day price volatility.
Table 1-4 BMX market situation (data point: 2019.08.26)
1.3 Application scenarios
At present, the main applications of BMX token include: discounted platform trading fee, repurchase mechanism, Mission X and votes for new projects' listing.
Among all the applications, Mission X is a new application scenario of BitMart launched on July 31, 2018, and a trial version of Mission X was conducted in the Chinese community this year. BitMart can list BMX trading pairs for free by locking up 2 million BMX, and then USDT trading pair also be listed 9 days after that. The lock-up users can get additional rewards including airdrop and new shares from the projects, and the first 30 participants of voting and lock-up are eligible for community partnership qualification and enjoy two-level trading rebate.
Meanwhile, by establishing nodes with national partners, BitMart is also increasing and expanding BMX's application scenarios among institutions in various countries. Take the recent strategic partnership between BitMart and the Nigerian partner company for example, the Nigerian partner company will pay BMX to BitMart as consideration for the use of the BitMart brand.
1.3.1 Discounted trading fee
In January 2019, BitMart platform launched the trading fee classification preferential system. Users can use BMX to pay the trading fee and enjoy the discount. The larger the trading volume and the position of BMX, the higher the discount. The specific rules are as follows:
Table 1-5 BitMart platform transaction fee classification system
Source: BitMart, TokenInsight
According to this plan, users can achieve a trading fee discount rate up to 70%, which is 0.03% for makers and 0.06% for takers, based on the trading volume and BMX position. Users who use BMX to pay the trading fees can get an extra 50% discount.
1.3.2 Repurchase and burn of BMX
The repurchase-burn mechanism usually refers to the exchange using its own profit/income/trading fee to repurchase its tokens regularly or irregularly from market, and destroy the repurchased part by transferring the destruction function. This means that the total circulation of the token in the market decreases and deflation effect appears, which consequently causes the token value to increase.
Since June 2018, BitMart has been using 20% of the platform's current trading fee profit to repurchase BMX every month, and the repurchased BMX will be directly destroyed until the remained circulating amount is 500 million.
Table 1-6 List of burned BMX
Source: BitMart, TokenInsight
According to the statistics released by BitMart, the platform had burned 63.633 million BMX by the end of August 2019, accounting for 6.4% of the total circulation volume, which is about 1.65 million USD.
2. BMX valuation
As the equity certificate in the ecosystem of BitMart exchange, BMX's landing application is the platform itself, and its value is closely related to the development of the platform. We will discuss about the prospects of BitMart platform later in the report. Before that, we performed quantitative BMX valuation based on assumptions of several parameters, and tried to get a reasonable value range of BMX.
2.1 Fisher Equation
Fisher Equation is derived from the traditional monetary theory. Currently, it is widely recognized as a good tool to evaluate the value of cryptocurrency:
M*V = P*Q
- M-total amount of currency in circulation (token's market cap in circulation)
- V-currency's velocity of circulation (token's turnover rate)
- P-average price of goods (token's average price)
- Q-total amount of goods (token's market circulation)
We can use this equation to estimate the average price of BMX for the following quarters, use discounted cash flow method to calculate the expected future cash flow and use the Perpetual Growth Rate to calculate the terminal value (TV).
First, we analyzed and predicted each variable:
2.1.1 BMX market circulation (Q)
From above statistics, the platform had destroyed a total of 63.633 million BMX by the end of August 2019, and kept burning 2-5 million BMX per month in the first half of 2019. Currently, there are about 163 million BMX in circulation on the market. Assuming that 4 million are destroyed every month thereafter, BMX's market circulation will keep decreasing.
On the other hand, here are several factors that will decrease the market circulation considering the platform's ecosystem:
1) One is the platform's latest application scenario Mission X, in which the project can be listed with "0 listing fee" by locking 2 million BMX. It can be predicted that in the future, there will be more and more projects to list the trading pairs by locking BMX, which will reduce the market circulation of BMX in the short-medium term.
2) The current trading fee classification preferential system of BitMart stipulates the discount of trading fee corresponding to different levels of BMX lock-up. Therefore, users may attempt to get more discount by holding BMX.
Since the time cycle of project lock-up and discount lock-up is uncertain in terms of the effect of reducing the circulation, the quantity is difficult to estimate and therefore such effects can be considered as short-term, the reduction of BMX from this part will be excluded from the model.
2.1.2 BMX turnover rate (V)
For the calculation of turnover rate of exchange token, the major consideration is the circulation rate in its platform ecosystem. Here, we calculated the ratio of BMX daily trading volume to its total market cap to obtain its turnover rate. The turnover rate and daily trading volume of BMX vary significantly. Based on the data from recent month, the daily trading volume fluctuates between 0.17 million and 1.97 million, while the turnover rate varies from 4% to 41%. In the model, we considered the turnover rate as 20%, and assumed that the future overall trading behavior remains constant and the turnover rate remains unchanged.
Table 2-1 BMX daily trading volume and turnover rate curves (2019.07.27-2019.08.25)
Source: CoinMarketCap, TokenInsight
2.1.3 Discounted Cash Flow
First, we assumed the fixed growth rate of trading volume on BitMart platform to calculate the expected future cash flow.
According to the historical data, the total trading volume of BitMart platform grew rapidly in 2018 and increased steadily since the end of 2018. However, the range of variation is still large. Only in the first half of 2019, the highest growth rate reached 110% while the lowest is -12%. Therefore, we firstly assumed that the quarterly growth rate of trading volume on the platform is 20% (followed by the pressure analysis at the rate of -20%, 0, 40%, 60%, 80%).
Table 2-2 Change of trading volume on BitMart platform (2018.03-2019.07)
Source: BitMart, TokenInsight
According to the official repurchase-burn data, it can be calculated that the platform earned around $1.35 million trading fees in 2019 Q1 and $1.9 million in 2019 Q2.
On the basis of following equation:
PV - Present value of cash flow
CF1 - Cash flow at the end of the first year (quarter)
CF2 - Cash flow at the end of second year (quarter)
CFn - Cash flow at the end of the nth year (quarter)
R = Discount rate
TV = [Fn*(1+ Perpetual Growth Rate)] / (Discount rate - Perpetual Growth Rate);
Figure 2-3 BMX valuation model
In this case, the discount rate is calculated at 4% per quarter; The growth rate of trading volume is conservatively estimated at 20%. In fact, BMX trading volume has increased by over 100% every quarter from Q3 2018 to Q2 2019.
(considering that the fee growth rate in August 2019 is -35% compared with July, and the trading volume has decreased, the stress test of the model with the negative growth rate as the parameter will be conducted later.)
Assuming that the turnover rate remains unchanged at 20% and the discount rate and the growth rate of quarterly trading volume are changed, the stress test of BMX valuation of 2019 Q4 is as follows:
Figure 2-4 BMX valuation stress test 1
In addition, it is assumed that the discount rate remains constant at 4% and the growth rate and turnover rate are changed. The results are as follows:
Figure 2-5 BMX valuation stress test 2
Assuming that the growth rate remains constant at 20% and the discount rate and turnover rate are changed, the results are as follows:
Figure 2-6 BMX valuation stress test 3
2.2 P/E valuation method
In addition, for the exchange's business model, the P/E method in traditional stock can be used to calculate the reasonable valuation range of exchange token. The P/E ratio of assets is calculated and compared with the industry average P/E ratio: if lower than the industry average, undervalued; higher than the industry average, overvalued.
P/E = market price/net profit = token's market cap/ platform's annual net profit
According to the official data, it can be estimated that the platform has made a profit of about $1.35 million in Q1 2019 and about $1.9 million in Q2 2019.
Based on the previous data, it is assumed that the average quarterly growth rate of BMX in the next two quarters are -20%, -10%, 0%, 20% and 40% respectively:
Figure 2-7 BMX P/E calculation
BMX's annual trading fee profit (after deducting the repurchasing costs) is between $4.8 million and $7.7 million, and the resulting P/E ratio is between 0.6 and 1.0. Other profits of the platform (such as the listing fees) remained unknown, so the actual P/E ratio should be lower.
Using the same method, we calculated the P/E ratio of BNB issued by Binance for comparison. The repurchase-burn cost of BNB is sourced from 20% of Binance's quarterly profits. Based on its reported repurchase costs and average quarterly market cap, it is not hard to calculate the range of its P/E ratio is between 12 and 18. Assuming that the P/E ratio of BNB is close to the industry average, BMX is relatively undervalued.
3. Current situation and prospect of BitMart
Essentially, the value of exchange token is closely related to the development and the intrinsic value of trading platform. Therefore, it is inaccurate to estimate the value of an exchange token only from quantitative perspective. When measuring the intrinsic value of an exchange and the value of its exchange token, multiple factors should be considered, including the number and activity of users of the platform, the global influence of the platform, the technical strength of the team, the policy/audit compliance of the platform, and the application scenarios of token, so as to make a comprehensive evaluation.
Currently, the total number of BitMart users is around 900,000, and its main users are distributed in the Netherlands, Turkey, the United States, Indonesia, China and Mexico, among which Indonesia is recorded a monthly growth rate of 649.83% in August. The amount of website's global visitors maintain a high monthly growth rate, according to the latest statistics from SimilarWeb, the monthly visits of BitMart.com is about 300,000 to 600,000, and the number of unique visitor (UV) is about 150,000 to 350,000; BitMart.io, which is mainly focusing on the Chinese market, has another 20,000 monthly visits (according to the latest data provided by BitMart, the total visits number of BitMart.io in August is 43,667, and the number of independent visits is 18,084, which is higher than SimilarWeb's statistics). There's still some gap compared with the leading exchanges. However, in terms of globalization, BitMart has been in an advantageous position.
Table 3-1 Comparison of visit distribution between BitMart and various trading platforms (2019.08)
Source: SimilarWeb, TokenInsight
Table 3-2 Top 5 visit countries of Bitmart.com (2019.08)
Source: SimilarWeb, TokenInsight
According to the official disclosure from BitMart, the platform focuses on promoting its compliance layout since its launching. In 2017, the platform obtained the MSB (Money Services Business) License issued by the federal level in the United States. Currently, it is applying for the MTL (Money Transmission License) License at the state level. It has obtained the MTL License of one state in the United States, and plans to complete the MTL application in all states within 4-5 years.
At present, BitMart has obtained the opportunity to cooperate with three compliant legal currency payment platforms, provided credit card and debt card deposit channels, and supported both USD and Euro fiat deposit. In August this year, it launched a USD-to-crypto gateway "Quick Exchange" to US residents, and users can use their bank accounts for transfer. By the way of using banks to manage fiat, the user can be provided with more secure and reliable transaction environment, which is considered a benefit for the platform to attract users in the long run.
Table 3-3 Comprehensive analysis of BitMart platform
In general, the overall development of BitMart exchange shows a steady upward trend and relatively high increasing rate in users volume. However, there is still space for improvement compared with leading exchanges. The platform's overall layout is internationalization and compliance.
From the valuation analysis of exchange token, we believe that the trading volume, trading activity and market circulation all play significant roles in its intrinsic value. Based on the analysis of historical data and the study of the platform ecosystem, we made assumptions, conducted pressure analysis on key parameters and carried out quantitative discussions on token prices. Considering that the platform is still in a growing trend, the trading situation changes quickly and the currency price volatility is large, the quantitative calculation is only for reference.
Assume that the quarterly discount rate, trading volume growth rate and turnover rate are 4%, 20% and 20%, respectively, and the monthly market circulating volume is reducing constantly；exclude the additional profit other than the trading fee; ignore the amount of BMX that is locked up due to new project launching and trading fee discount. The price of BMX in the fourth quarter of 2019 will be likely to reach 0.087 USD according to the quantitative calculation.
In addition, P/E of BMX based on the current platform profit is estimated to be in the range from 0.6 to 1.0, suggesting that the token is undervalued to some extent.
Based on the above valuation analysis of BMX, as well as the comprehensive evaluation of BitMart platform situation and prospects, we believe that price of BMX will maintain a stable upward trend in the next 4-6 months.