Ethereum's native token, ETH, is currently undervalued according to a majority of valuation models, market analysts suggest. A recent analysis by Hashed, a crypto market analysis platform, examined ten different valuation models for Ethereum and concluded that eight of them indicate ETH is presently trading below its fair value.
These models, which incorporate methodologies such as TVL (Total Value Locked) multipliers, staking scarcity premiums, and cash flow discounting, suggest a weighted average price exceeding $4,700 for ETH. This is significantly higher than the current market price of around $3,032.
However, the reliability of these models varies. Models based on TVL multipliers are considered less reliable due to their simplistic assumptions. These models argue that Ethereum's valuation should be a multiple of its DeFi TVL, simply linking market cap to TVL. Hashed uses the average market cap-to-TVL ratio from 2020 to 2023, which is 7 times. By multiplying the current DeFi TVL on Ethereum by 7 and dividing by the supply, the resulting price is $4,128.9, which is 36.5% higher than the current price. This rough calculation method only considers DeFi TVL and cannot accurately determine the actual TVL due to complex recursive staking, indeed deserves its low reliability rating.
Another model considers that Ethereum locked up due to staking increases its "scarcity" in the market. It multiplies the current price of Ethereum by the square root of the ratio of total supply to liquid supply. The resulting price is $3,528.2, which is 16.6% higher than the current price. However, according to this algorithm, ETH is always undervalued, not to mention the rationality of only considering the "scarcity" brought by staking and the additional liquidity of staked ETH released by LSTs, making it equally rough.
In contrast, the yield-based bond model is regarded as highly reliable by TradeFi analysts. This model treats Ethereum as a yield-bearing bond, calculating a fair price of approximately $1,941.50. This calculation is Ethereum's annual revenue divided by its staking yield to calculate its total market capitalization, using the formula Annual_Revenue ÷ APR ÷ Supply. This is 36.7% lower than the current price.
The Hashed analysis highlights the absence of a standardized valuation framework for Ethereum within the Web3 industry. Valuing Ethereum requires considering various factors. Hashed suggests a weighted average of 10 different models, resulting in a price of around $4,766.
It is important to note that these models are just estimations and should not be taken as financial advice. The cryptocurrency market is highly volatile and unpredictable, and investors should always do their own research before making any decisions.
