Ethereum Undervalued at $2,200 Amid Booming On-Chain Activity

Crypto investor Ryan Sean Adams has made a compelling case for the valuation of Ethereum (ETH), finding the current price of approximately $2,200 verging on the absurd when taking into account the blockchain’s robust on-chain activity and its pivotal role within the digital asset environment. Adams argues that Ethereum is grossly undervalued, pointing to a myriad of factors underscoring its worth.

He draws attention to the platform’s significant revenue generation from transaction fees, often referred to as “gas” fees—a sum that reaches into the billions annually. Ethereum’s shift towards becoming a deflationary asset, post its September 2021 merger, adds to this intrigue, along with the fact that over one million validators are staking their coins and earning rewards in excess of 5%.

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Furthermore, Adams speculates on the long-term potential impact of the SEC’s anticipated approval of spot Ethereum ETFs. Industry giants like BlackRock and Fidelity have already thrown their hats in the ring, seeking to issue these investment products. While the SEC has so far not greenlit any spot crypto ETFs, the expectation simmering in the market is for an approval to come, possibly in the early months of 2024.

The crypto market is abuzz with the notion that the introduction of Ethereum spot ETFs would magnetically draw billions in institutional capital. This anticipation isn’t solely hinged upon the regulatory developments and the excitement around ETFs. Adams has dubbed the escalating demand for Ethereum mainnet block space by various layer-2 solutions—which facilitate off-chain rollups—as a significant driver.

Layer-2 platforms are boasting a total value locked (TVL) over $14.9 billion, as per reporting by L2Beat, with heavyweights such as Arbitrum One, OP Mainnet, Starknet, and Base leading the charge with daily transaction volumes reaching tens of thousands. Adams has noted that these layer-2 rollups have recently become some of the largest consumers of Ethereum block space, an indication of their rising importance and utilization.

Adams made an intriguing comparison, using traditional financial metrics—such as the price-to-earnings ratios common in evaluating stocks—to position Ethereum not unlike powerhouses in the tech sectors, such as Amazon and Zoom. Viewing Ethereum through this lens makes a case that its growth trajectory is not just probable, but perhaps inevitable.

Despite the venture capitalist’s confidence in Ethereum’s potential to soar to values ten times its current price, Adams acknowledges the unpredictability of the market in recognizing such underlying value. He anticipates a surge that could set Ethereum’s price soaring above $22,000 per token, albeit with the caveat that market rationality is not always timely.

In a harmonious sentiment, Uniswap founder Hayden Adams (unrelated) concurred that Ethereum’s foundational attributes are key to its value appreciation. Differing slightly in perspective, the Uniswap founder emphasized that this strength is rooted not in speculative aspects, as highlighted by Ryan Sean Adams, but in the practical demand from protocols actively launching on Ethereum and vying for the increasingly scarce block space — a competition that could directly influence price growth.

Ethereum’s journey towards deflation is exemplified by the data from Ultra Sound Money, which shows that protocols like Uniswap are instrumental in Ethereum’s coin burning mechanism. Over the past month, more than 14,900 ETH have been removed from circulation—illustrating the deflationary trajectory of the network.