The Value of Ethereum: A Discounted Perspective
Fidelity Investments’ crypto-focused subsidiary believes that Ethereum (ETH) is currently being traded at a discount. According to their report titled ‘Ethereum Investment Thesis’, the current supply of Ethereum is approximately 120 million, and with annualized network fees exceeding $6.8 billion, the modeled price of ETH using a discounted cash flow model is around $2,090 – a 28% increase from the current price.
Fidelity Digital Assets argues that the value of Ethereum is closely tied to network activity and the fees generated. They predict that these fees will grow by double digits over the next seven years, reaching over $20 billion by 2030.
“Ether’s value is easily modeled through the network’s shift to proof-of-stake. Transaction fees measure the demand for block space, which can either be burned or passed on to validators, increasing the value for ether holders. As Ethereum’s use cases expand, the demand for block space will increase, resulting in higher fees and greater value for validators.”
However, Fidelity Digital Assets acknowledges the risks that could hinder fee generation on the Ethereum network. They state, “The relationship between ether and its value to network users may weaken if scaling technology reduces fee revenue, unless there is a significant increase in transaction volumes to offset this compression.”
As of now, Ethereum is trading at $1,630.
Hot Take: Ethereum’s Undervaluation
Fidelity Investments’ assessment suggests that Ethereum is currently undervalued, presenting an opportunity for potential investors. With the anticipated growth in network activity and associated fees, the value of Ethereum is likely to increase in the long run. However, caution is advised as scaling technology and transaction volumes play a crucial role in sustaining this value proposition.
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