In 2017, investor John Pfeffer printed “An (Institutional) Investor’s Take on Cryptoassets,” a seminal paper on long-term investments of crypto tokens.
Looking back, Pfeffer’s unique thesis was means forward of its time. It laid the formative groundwork for investor pondering round magic web cash, and made many prescient predictions that also maintain up right now.
Pfeffer argued that the equilibrium long-term end result could be one dominant crypto asset as a financial retailer of worth, with bitcoin because the doubtless candidate. He projected BTC’s market cap inside a variety of $4.7 to $14.6 trillion ($260k-$800k per BTC).
There are various causes Pfeffer believes bitcoin could be cemented because the dominant SOV, however key to the thesis is that BTC carries the least technological threat. For ETH to beat BTC on the SOV recreation requires large mental coordination throughout a multiyear roadmap with plenty of technical upgrades topic to delays and/or threat of failures.
As Hasu put it on an previous Unusual Core podcast, “nothing happening in bitcoin is actually the best thing that can happen to bitcoin.”
Turning to Ethereum, ETH bulls right now are likely to argue the prevalence of ETH to BTC on a multi-prong degree: Its use as a method of fee inside the EVM ecosystem buttresses its worth as a SOV (on high of its deflationary results following EIP-1559).
But it surely’s not clear why that alone would make ETH a priceless SOV.
Pfeffer argued that crypto individuals would merely convert their most well-liked “store of value via the payment rail at the time of payment in the exact amount needed and for as little time as possible.” He likened this to retailers changing financial institution deposits to bodily money for funds solely at instances of want.
Pfeffer additionally presciently argued that Ethereum’s scaling options — equivalent to L2s and the transfer to proof-of-stake — could be “bullish for adoption/users but bearish for token value/investors.” This has turned out to be exceptionally spot-on in gentle of Crypto Twitter’s fixed caterwauling concerning the lack of ETH’s worth appreciation within the final yr.
So what’s ETH price?
In the present day, Pfeffer’s landmark thesis is being revisited by way of a newly-published paper by Triton liquid fund, which he co-authored.
The paper’s conclusion: Ethereum is a technological marvel, however ETH’s risk-adjusted upside is a troublesome projection to make.
One might attempt to worth ETH as a cash-flow asset. However Ethereum’s fixed innovation round its protocol and tokenomics makes a DCF evaluation “incredibly difficult to do accurately.”
Even so, the paper makes an try based mostly on beneficiant assumptions that issuance is net-neutral, plus with a mean development price of 5%. It doesn’t matter what low cost price one makes use of, although, “ETH appears highly overvalued today as a cash flowing asset at $400b.”
One might then flip to the “monetary premium” argument for ETH. However opposite to ETH bulls, ETH will not be cash — it’s not even the de facto unit of account within the EVM ecosystem (the US greenback is). Working example: Base, Ethereum’s largest L2, began providing final month using USDC for fuel prices somewhat than ETH.
Even when ETH was handled as the first medium of change onchain, making an attempt to justify ETH’s ~$400+ billion valuation based mostly on “monetary premium” is an train laced with wishful pondering. The paper estimates Ethereum’s onchain “GDP” at about $2.8 billion (annualized based mostly on the previous six months), making it about 1000x overvalued by its present valuations.
The strongest argument for ETH as an investable asset factors to it because the dominant internet-native commodity and productive onchain asset. Holding ETH will not be like holding gold bars or oil — one can stake it in DeFi to accrue a yield.
But, the paper questions {that a} 3% yield from Lido outweighs the inherent volatility of ETH for it for use as an “internet bond.”
In conclusion: “At $400b today and given its current trajectory, it is difficult to justify ETH as a rational investment on a risk-adjusted long-term horizon, no matter which lens you use to value it…BTC still holds its position as a sound risk-adjusted bet that it can grow into its role as a non-sovereign store of value.”
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