Is Ether's True Value Actually Closer To $1,500?

Is Ether's True Value Actually Closer To $1,500?

Recently, J.P. Morgan strategist Nikolaos Panigirtzoglou claimed that ether is trading far above its fair value, citing an evaluation of Ethereum’s network activity and mounting concerns about competition with other platforms.

More specifically, he told Markets Insider that the digital token’s fair value is close to $1,500.

The cryptocurrency was worth roughly $2,900 on CoinDesk at the time of this writing, which would mean that if the assessment provided by Panigirtzoglou and his team is accurate, the digital asset was trading at close to double its fair value.

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

“We look at the hashrate and the number of unique addresses to try to understand the value for ethereum,” he stated. “We’re struggling to go above $1,500.”

Panigirtzoglou expressed this reservations about the digital currency’s valuation, stating that “the current price is expressing an exponential increase in usage and traffic that might not materialise.”

Further, he stated that Ethereum is “not unique,” adding that “you’re already seeing competition from binance, competition from solana.”

Analysts React

Several market observers weighed in for this article, offering their responses to the claim that ether’s fair value should be closer to $1,500.

Jeff Dorman, chief investment officer of asset manager Arca, threw cold water on the methodology used by Panigirtzoglou and his team.

“That valuation technique of Ethereum is outdated, and was likely never accurate in the first place,” he stated.

“There are different techniques for valuing different types of digital assets,” noted Dorman.

“Some, like pass-thru tokens and asset-backed tokens, can be easily valued using the same DCF and present value techniques we use to value bonds and stocks. Others, like cryptocurrencies, cannot be valued based on anything other than relative value.”

“But protocols and platforms like ETH, SOL and ADA are unique,” he emphasized.

“In the early days of a network, you can value it loosely using Metcalf's law and some combination of future expectations for users, transactions and overall economic activity,” said Dorman.

“But as these networks mature, you can start to value them using actual cash flows.”

“Ethereum, following the EIP-1559 upgrade, now has quantifiable fee generation that accrues directly to ETH token holders via ETH being burned to offset inflation (sometimes even being deflationary),” he stated.

“As such, we can model ETH similarly to how you would model the GDP of a country (valuing ETH in terms of its own native currency, and then translating that back to US dollars),” said Dorman.

He referenced a recent writeup he published on the Arca blog, where he delved into how ether could be conceptualized as “the native currency of its own network, which requires a new valuation technique.”

“We believe today's value for ETH's is closer to $5,000,” Dorman concluded.

Cryptocurrency fund manager Jacob Eliosoff was also critical of the $1,500 figure.

“I think his claim is ridiculous,” said Eliosoff.

“Maybe if I saw his evidence for it I could be convinced, but there have been so many analyses like this over the last decade and most of them have proven, again, ridiculous,” he stated.

“What would his ETH forecast have been in 2016, when it was trading below $10? Or as recently as March 2020, when it was below $100?”

“The historical track record is that price analysts don't understand what drives crypto prices.”

Ben Armstrong, founder of BitBoy Crypto, also offered a skeptical assessment.

“Paul Krugman famously predicted in 1998 that the internet would have the same impact on the economy as the fax machine and Mr. Panigirtzoglou’s comments on Ethereum share that same lack of foresight,” he stated.

“Ethereum’s value is set to grow along with decentralized finance and the rapid expansion of NFTs. Ethereum is digital oil and at this moment in Ethereum's history, we’ve barely scratched the surface of its potential,” said Armstrong.

“The total volume on Defi is still a fraction of what is passing through traditional markets and that is only going to see greater adoption as Ethereum and blockchain as a whole become more streamlined and accessible to the masses,” he stated.

“By contrast, most experts would agree that $1500 Ethereum is its bear market floor price.”

Nicholas Merten, founder & CEO of Digifox, also chimed in, offering a rather cut-and-dried supply-demand analysis.

“Ethereum, just like any other asset’s price, is determined by whether we’re seeing more inflows (buyers) or outflows (sellers) when it comes to market orders.”

“With Ethereum seeing over 7.7M ETH staked (6.5% of the supply) for its future network upgrade and 5,500 ETH being burnt on a daily basis, we can see that available supply is drying up as time progresses,” he stated.

Merten used this methodology to make a forecast for the digital currency’s price.

“If demand sustains itself or continues to grow, prices will likely appreciate, rather reaching $5,000-$10,000 sometime in the first half of 2022.”

Nick Spanos, cofounder of Zap Protocol, also shed some light on where ether prices might go in the future.

“Ethereum’s true value is unquestionably above $1,500 - and there’s every chance it could become the most valuable crypto in the world within a couple of years,” he stated.

“Furthermore, it should be noted that even if Ethereum’s real value is $1,500, that doesn’t necessarily mean its price will ever converge with that. After all, many stocks stay overvalued or undervalued for several years and may end up never converging with their true value.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether and EOS.