Why Ethereum Could See a 4x Rise, This Model Says

Ethereum has seen a market pullback after Bitcoin recently. Although the market is still in a downtrend, the digital asset has held up quite well. Ethereum has been trending above $2,800, almost 50% below its all-time high. But one model suggests that three is a 4x move in the near future for the digital asset. Let’s take a look at this model.

Ethereum at 4X?

In a recent Twitter thread, a crypto investor known as Shaan Puri presents the model that could take Ethereum to four times its current price. It starts by stating that the digital asset is currently undervalued by up to 4 times, which means that they expect the price to be much higher than it is currently.

Related Reading | TA: Ethereum recovers losses, why bulls face a big challenge

Pointing to a foundation laid 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 broader adoption argument, it uses three key attributes to price the cryptocurrency so high.

ETH recovers above $2,800 | Source: ETHUSD on TradingView.com

The first of these is the income generated by the asset. As with many crypto projects, sending tokens incurs a fee from the sender. This fee is then paid to the miner for providing the computing power required to confirm these transactions. Puri points out that in January alone, the revenue generated from transaction fees was $1.3 billion, which is then split into the base fee and tip.

With the implementation of EIP-1559 last year, ethereum fee burning was implemented. Over time, more ETH is burned than is created, making the digital asset deflationary.

Google “ETH watch the burn”

There is a great website that shows you how much the ETH supply is getting smaller every day.

The last 24 hours, $36 million worth of ETH was burned.

In the long run, this is why ETH believers came up with the term “ultra-solid money” because the supply of ETH decreases over time. pic.twitter.com/yzQ21KuWtD

—Shaan Puri (@ShaanVP) February 2, 2022

The second point was the valuation of companies that have cash flow. Something that the creators of this model understand well, given that they went to business school. It continues with an image explaining Ethereum’s discounted cash flow valuation and how it relates to this model.

ETH Discounted Cash Flow Valuation | Fountain: Twitter

Last but not least, the assumptions behind the model, which are “the model assumes a 25% annual growth rate and a P/E ratio of 35x (the average of the SP500.”) Puri explains that the high fees for gas are of concern to developers and users alike, leading to two main risks: all transactions are moved to L2 to manage transaction fees or another smart contract platform that ultimately wins.

Related Reading | Bitcoin On-Chain Lawsuits Suggest Market Has Bottomed

Basically, since ethereum has real cash flow, it can be used in fundamental analysis of the asset, Puri added.

But a more important point is that we have heard for years that cryptocurrencies are:

“Rat Poison”
“It’s just speculation”
“It is not an investment. No core value

From value investors like Warren Buffet

That’s wrong now. ETH now has real cash flows to use for fundamental analysis.

—Shaan Puri (@ShaanVP) February 2, 2022