Ethereum has experienced a market pullback following bitcoin recently. Although the market remains in a downtrend, the digital asset has been holding up quite nicely. Ethereum has been trending above $2,800, almost 50% down from its all-time high. But a model suggests that three is a 4x movement in the near future of the digital asset. Let’s take a look at this model.
In a recent Twitter thread, a crypto investor known as Shaan Puri lays out the model that could drive Ethereum to four times its current price. It starts out by stating that the digital asset is currently undervalued by up to 4 times meaning that they expect the price to be much higher than it currently is.
Related Reading | TA: Ethereum Recovers Losses, Why Bulls Face Major Challenge
Pointing to a basis laid out by Ryan Allis, another crypto investor, Puri explains how the former’s model puts ETH at $10K. Instead of just going through “hopes and dreams” or the usual wider adoption argument, it uses three key attributes to put the cryptocurrency at such a high price.
ETH recovers above $2,800 | Source: ETHUSD on TradingView.com
The first of these is the revenue generated by the asset. As with many crypto projects, sending the tokens incur a fee on the part of the sender. This fee is then paid to the miner for providing the computational power required to confirm these transactions. Puri points out that in January alone, generated revenue from transaction fees was $1.3 billion, which are then split into the base and tip fee.
With the implementation of the EIP-1559 last year, the ethereum fee burn was implemented. With time, more ETH is being burned than is being created, thus turning the digital asset deflationary.
The second point was valuing companies that have cash flow. Something which the created of this model understands well, given that they went to business school. It follows up with a picture that explains ethereum’s discounted cash flow valuation and how it ties into this model.
ETH discounted cash flow valuation | Source: Twitter
Last but not least, the assumptions behind the model, which are “the model assumes a 25% annual growth rate and a 35x P/E ratio (the average of the SP500.” Puri explains that the high gas fees are a cause for concern for both devs and users, which leads to two major risks; all transactions moving to L2s to manage transaction fees or another smart contracts platform winning out in the end.
Related Reading | Bitcoin On-Chain Demands Suggests That The Market Has Reached Its Bottom
Basically, given that ethereum possesses real cash flow, it can be used in the fundamental analysis of the asset, Puri added.
Featured image from NullTX, chart from TradingView.com
Tags: ETHeth priceETH valueethereumethereum networkEthereum outlook
You can get bonuses upto $100 FREE BONUS when you:
💰 Install these recommended apps:
💲 SocialGood - 100% Crypto Back on Everyday Shopping
💲 xPortal - The DeFi For The Next Billion
💲 CryptoTab Browser - Lightweight, fast, and ready to mine!
💰 Register on these recommended exchanges:
🟡 Binance🟡 Bitfinex🟡 Bitmart🟡 Bittrex🟡 Bitget
🟡 CoinEx🟡 Crypto.com🟡 Gate.io🟡 Huobi🟡 Kucoin.
Comments