Amidst a broader market downturn, Fidelity Digital Assets, the cryptocurrency branch of investment behemoth Fidelity Investments, suggests that Ethereum is trading below its intrinsic value. According to a new report titled “Ethereum Investment Thesis,” the firm employs a discounted cash flow model to calculate that Ethereum’s current fair price should be approximately $2,090. With a staggering $4.5 trillion in assets under management, Fidelity’s input carries considerable weight in the financial world.
The report delves into the nitty-gritty of Ethereum’s valuation. It observes that the network’s annualized fees surpass $6.8 billion, even as Ethereum’s circulating supply hovers around 120 million ETH. Fidelity Digital Assets predicts a bullish future, forecasting that these fees could escalate to over $20 billion by 2030. The firm underscores that Ethereum’s valuation closely correlates with its network activity, particularly the fees generated.
Adding granularity to these insights, the report elaborates that Ethereum’s transition to a proof-of-stake mechanism makes its valuation easier to model. This change allows demand for block space to be measured through transaction fees, which either get burned or passed on to validators. Consequently, the firm posits that the long-term relationship between fees and Ether’s value will be intrinsically linked. The burgeoning use-cases for Ethereum are expected to fuel demand for block space, triggering a virtuous cycle of increased fees and added utility.
However, the report doesn’t gloss over potential challenges. It warns that the erosion of fee revenue due to scaling technologies could dilute Ether’s value unless offset by increased transaction volumes.
Notably, the findings arrive when Ethereum receives a boost from large-scale investors or “whales,” who have recently bought over $400 million worth of the asset. This accelerated accumulation comes despite Ethereum shedding about 4.7% of its value over the past week. The wider cryptocurrency market, too, has experienced a correction, with the total market capitalization dropping perilously close to the $1 trillion mark.
In a nutshell, Fidelity Digital Assets’ detailed analysis indicates that Ethereum is currently undervalued, projecting a robust financial landscape for the cryptocurrency over the next decade. This offers a contrasting view amid current market volatility, giving long-term investors food for thought.