Is Ethereum’s Valuation Fair? Expert Predicts a Potential 17x Return for ETH

Ethereum (ETH) Price Soars by 128% in 12 Months, Gains 804,027% Since 2015

The price of Ethereum (ETH) has seen a remarkable increase of 128% over the past year, and has gained a staggering 804,027% since its trading debut at $0.43 on October 20, 2015. Despite this impressive growth, many are wondering if the current trading price leaves room for further rallies, with some experts predicting a potential 17x increase.

In fact, Brian Russ, managing director of BMO Financial Group in Colorado, believes that this is indeed a possibility. Speaking at ETHDenver on March 1, Russ explained how traditional finance analysts use various quantitative models to evaluate a company, blockchain, or token. He specifically highlighted the discounted cash flow, precedent transaction, market comparables, and Metcalfe’s Law models in relation to the Ethereum network.

Using these models, Russ detailed how his methodology can accurately predict the potential value of a blockchain, such as Ethereum, and its token. With this in mind, it is clear that the future of ETH is bright and investors can expect to see continued growth in the coming years.

Today’s Crypto News: Ethereum May Be Undervalued by 15%

According to the discounted cash flow (DCF) model, Ethereum could currently be 15% undervalued. This model calculates a company’s or blockchain’s worth based on its projected profits in the future, discounted to their present value.

One way to gauge Ethereum’s profits is by looking at its wallet growth. Data from Etherscan shows a 36% annual growth in Ethereum wallets over the last 5 years. Assuming a 33% annual growth for the next 10 years, it is estimated that 4.5 billion users, or half the world’s population, could be using Ethereum by 2033. While this may seem like a lofty assumption, it is still a possibility.

To determine Ethereum’s profits, the amount of Ether issued and burned can be used as a proxy. Based on this, it is estimated that the Ethereum network generated $1.8 billion in profit in 2023. Assuming a 33% annual growth for the next 10 years, the future value of the Ethereum blockchain is estimated to be $458 billion.

After the 10th year, a more conservative 5% growth rate is applied, and the Fed Funds rate of 5% is used to bring the cash flow figure back to its present value. This results in a valuation of $400 billion, indicating that Ethereum may be undervalued by 15% currently.

Insights from past transactions reveal Ethereum’s current value

Similar to the real estate market, determining the worth of a company or property involves analyzing the financial performance of competitors, such as revenue, cash flow, and market capitalization. By comparing Ethereum to other emerging tech companies that have achieved significant market dominance, and evaluating their price-to-earnings ratio during their initial profitable year, as well as the average P/E ratio over a 5-year period.

Based on this model, the total value of the Ethereum network is estimated at $312 billion. This suggests that, according to the model, Ethereum is currently overvalued by 20%.

Comparing Ethereum to Other Blockchains Today

Examining the current state of the cryptocurrency market, Russ uses a unique formula to compare the value of the Ethereum network to other layer-1 projects. By dividing the market cap of a blockchain by its total value locked (TVL), Russ determines its overall value. “When we add up the market caps of the top 6 blockchain projects and divide it by their total value locked, we get a combined MC/TVL figure of 8.”

Applying this figure to Ethereum’s TVL of $47 billion, we can estimate the blockchain’s value at $376 billion. This suggests that Ethereum may be slightly overvalued by approximately 6%.

Metcalfe’s Law

Metcalfe’s law is often used to estimate the current value of a network. According to its creator, Robert Metcalfe, the valuation of a network should be evaluated exponentially, rather than linearly, due to the way new technologies scale. This law states that the value of a network is directly proportional to the square of its connected users.

Based on data from Etherscan, the Ethereum blockchain currently has 15 million monthly active users. When squared, this number gives a valuation of $225 billion, indicating that the network’s true value is actually 44% lower than its current market cap of $400 billion. However, there is a caveat when using Metcalfe’s Law model.

Looking at today’s top crypto news, Celsius, COTI, and Compound are all making headlines. However, not all crypto news is good news. BTT, Cronos, Cosmos, Brise, and Bitrise are all seeing negative trends in today’s market.

Is Ethereum Currently Undervalued or Overvalued?

After considering the results from four different models, a weighted average of 25% from each model suggests that Ethereum’s implied value is $345 billion or $2,875 per Ether, as stated by Russ.

Russ explains that using quantitative-based models provides more accurate and conservative estimates for a project’s true value. Additionally, utilizing multiple valuation models can help investors identify potential arbitrage opportunities.

According to Russ, his model allows investors to confidently assess Ethereum’s current value and its potential future valuation.

Is a 17x return possible for Ether’s price?

Russ suggested that Ether’s current valuation could potentially see a 17x return. Taking into account the steady 33% annual growth of Ethereum wallets and profits, Russ explained that through simple compounding and a 10-year projection of this trend, a $1,000 investment in Ether today could yield $17,319 by 2033.