Is Ethereum Undervalued? It Should Be Way Higher, Analysis Shows Citing Metcalfe's Law

Zinger Key Points
  • Ethereum's 2023 network adoption rise hasn't reflected in its value against Bitcoin.
  • Dynamic valuation models are crucial to understanding Ethereum's evolving financial landscape.

Ethereum's native cryptocurrency, Ether ETH/USD, is currently trading at a 27% discount to its fair value.

That's according to a new analysis, which highlights how Ethereum has developed multiple value layers since its inception.

As the digital asset landscape continues to evolve, such insights become pivotal for industry stakeholders. This underscores the significance of events like Benzinga's Future of Digital Assets conference on Nov. 14, where experts and enthusiasts converge to discuss the latest trends and challenges in the crypto realm.

Also Read: Are Biden's Laser Eyes A Sign He's Warming Up To Bitcoin Ahead Of 2024 Election?

The Ethereum layers encompass various aspects of Ethereum's utility, from its state and network to its roles as a commodity, bond, and equity.

Ethereum's open-source nature and global governance mean that its economic structures and valuation models must adapt as the network evolves.

A key takeaway from the report is the application of Metcalfe's law to Ethereum.

This law posits that the value of a network is proportional to the square of its active users.

Historically, Ethereum's network value closely tracked RxR's Metcalfe's Law Index.

However, post-March 2021, Ethereum began trading at a premium to its active user base fair value.

This shift was attributed to the increasing contributions from scaling networks to Ethereum's blockspace.

Furthermore, Ethereum's diverse application use cases have spurred higher network activity compared to less versatile networks like Bitcoin.

This versatility has led to Ethereum surpassing Bitcoin BTC/USD in terms of active users in 2023. The rate of active users on Ethereum has also consistently outpaced Bitcoin since its launch.

Macroeconomic factors also play a role in user participation in networks.

Periods of liquidity expansion often coincide with the relative outperformance of expressive networks that cater to a wide range of user needs.

In 2023, despite a rise in Ethereum's network adoption, the market has yet to reflect this growth in ETH's value compared to Bitcoin.

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Posted In: CryptocurrencyNewsMarketsCrypto ValuationDigital AssetsOpen-source crypto networksRxR research