Intrinsic Value vs Market Price: The Difference Every Investor Must Understand

Cryptocurrency Trading and stock trading, you will always hear the concepts of “Intrinsic Value” and “Market Price”. What exactly is the difference? One is theoretical valuation, and the other is the actual transaction price, but they have a huge impact on your investment decisions.

Intrinsic Value is what? It is the “real value” calculated based on the fundamentals of an asset—earning potential, competitiveness, financial condition. It is usually calculated using the discounted cash flow method, which simply means projecting how much money can be made in the future and converting it to its value today. This requires analysis and calculation, unlike market prices that are visible in real-time.

Market Price is simply the price at which transactions can currently occur. It is determined in real-time by factors such as supply and demand, investor sentiment, and macro conditions. The same asset may be 1000 today and 1200 tomorrow, depending on how the market trades.

Core Differences:

• Emotional Fluctuations: Market prices are particularly susceptible to emotions. A hot news story or a shift in market sentiment can cause significant price volatility, potentially deviating severely from the Intrinsic Value.

• Calculation vs Real-time: Intrinsic Value requires calculations, and different analysts may yield different results; market prices change daily and can be checked anywhere.

• Investment Logic: Smart investors use Intrinsic Value to find undervalued assets (bargains), and use market prices to assess liquidity and market heat.

• External Shocks: Economic policies, interest rates, geopolitical factors, etc. can directly drive market prices and also widen the gap between the two.

In simple terms: Market price is the current hype, while intrinsic value is the long-term logic. Those who can calculate use intrinsic value to find opportunities, while those who observe use market price to find rhythm. By focusing on both, one can determine whether an asset is overvalued, undervalued, or fairly priced.