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In 2017, investor John Pfeiffer published “(Institutional) Investor Opinion on Cryptoassets”, an influential research paper on long-term investments in cryptocurrency tokens.
In retrospect, Pfeiffer's original thesis was ahead of its time. She laid the formative foundation for investors' thinking about magical Internet money, and made many insightful predictions that still hold up today.
Pfeiffer argued that the long-run equilibrium outcome would be one dominant crypto asset as a monetary store of value, with Bitcoin as a likely candidate. He expected the market value of BTC to range between $4.7 to $14.6 trillion ($260,000 - $800,000 per Bitcoin).
There are many reasons why Fiverr believes Bitcoin will be cemented as the dominant SOV currency, but the key to the thesis is that Bitcoin carries the least technological risk. For ETH to beat BTC in the SOV game, it takes massive intellectual coordination across a multi-year roadmap with a lot of technical upgrades that are subject to delay and/or risk of failure.
As Hasso said it in the past Uncommon essence Podcast, “Nothing that happens to Bitcoin is actually the best thing that could happen to Bitcoin.”
Turning to Ethereum, today's Ethereum bulls tend to argue that Ethereum is superior to Bitcoin on a multi-faceted level: its use as a means of payment within the EVM ecosystem supports its value as an SOV (on top of its subsequent deflationary effects EIP-1559).
But it is not clear why this alone would make ETH valuable SOV.
Pfeiffer argued that crypto participants would simply transfer “their preferred store of value via the payment path at the time of payment for the exact amount required and for as little time as possible.” He likened this to retailers converting bank deposits into physical cash for payments only in times of need.
Pfeiffer also wisely argued that Ethereum Sizing solutions -Like L2s and move to Proof of stake - It will be “bullish for adoption/users but bearish for token value/investors.” This turned out to be exceptionally accurate in light of Crypto Twitter's constant statements about ETH prices not rising in the past year.
So what is the value of ETH?
Today, Pfeiffer's historical thesis is review Through a recently published paper by the Triton Liquid Fund, which he co-authored.
The study concluded that Ethereum is a technological marvel, but that Ethereum's risk-adjusted upside is a prediction that is difficult to achieve.
One could try to value ETH as a cash flow asset. But Ethereum's continued innovation regarding its protocol and distinct economics makes DCF analysis "extremely difficult to perform accurately."
However, the paper makes an attempt based on the generous assumptions that issuance is net neutral, plus an average growth rate of 5%. No matter what discount rate one uses, “ETH appears to be highly overvalued today as a $400 billion cash flow asset.”
One can then turn to the “cash premium” argument for Ethereum. But unlike the ETH bulls, ETH is not money – it's not even the actual unit of account in the EVM ecosystem (the USD is). Case in point: Base, the largest L2 in Ethereum, was started an offer Last month, USDC was used to cover gas costs instead of ETH.
Even if ETH is treated as the primary medium of exchange on-chain, trying to justify a $400+ billion ETH valuation on a “cash premium” basis is an exercise in wishful thinking. The paper estimates Ethereum's "GDP" at around $2.8 billion (annualized based on the past six months), making it overvalued by about 1,000 times compared to its current valuations.
The strongest argument in favor of ETH as an investable asset points to it being the dominant commodity on the internet and the asset produced on-chain. Holding ETH is not like holding gold bullion or oil – one can stake them in DeFi to make a return.
However, the paper questions whether Lido's 3% return outweighs the inherent volatility of ETH for use as a “cyberbond.”
In conclusion: “At $400 billion today and given its current trajectory, it is difficult to justify ETH as a rational investment over a long-term risk-adjusted horizon, no matter what lens you use to evaluate it...BTC still maintains its position as a sound risk-adjusted bet on... That it could grow into its role as a non-sovereign store of value.
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