Gaining Traction in the Market
Bitcoin (BTC) has long been the focus of attention in the realm of digital assets, but Ether (ETH) is quickly gaining traction in the eyes of institutional investors. With its number of active users surpassing that of Bitcoin, Ethereum is attracting attention for its robust ecosystem of decentralized applications (dApps), which span a wide range of sectors, from non-fungible tokens to decentralized finance (DeFi).
A Discounted Valuation
While Ethereum’s influence in the crypto community cannot be denied, the price of ETH has been impacted by the crypto winter. Recent analysis from RxR suggests that Ether is currently trading at a 27% discount to its fair value when accounting for activity on various layer-two (L2) scaling solutions. This valuation is based on an enhanced version of Metcalfe’s law, which takes into account the active user base on the Ethereum mainnet as well as its L2s.
The Importance of Network Effects
According to Lewis Harland, an analyst at RxR, network effects play a crucial role in determining the value of a blockchain network like Ethereum. The more active users a network has, the more valuable it becomes. By factoring in the active user base of Ethereum’s scaling networks, the adjusted Metcalfe’s law valuation model provides a more accurate assessment of the network’s value.
Scaling Solutions and Value Locked
The emergence of scaling networks like Polygon has contributed to Ethereum’s growth in terms of total value locked (TVL). Currently, over 250 applications on Ethereum have a TVL exceeding $1 million, with nearly 30 layer 2 networks having a combined TVL of $10 billion. These advancements in scaling solutions further support the argument for Ethereum’s potential.
A Promising Future
Considering the increasing popularity of Ethereum scaling solutions and the potential for a 200% growth in daily active users by 2024, there is optimism for Ethereum’s future. Harland suggests that this growth could result in a fair network value of $800 billion by 2025, representing a significant increase from the current fair value. The Ethereum network has consistently outpaced Bitcoin in terms of active user growth, indicating the potential for higher valuations.
Factors Influencing Ether Price
Rafay Gadit, co-founder and CFO of Zignaly, highlights the importance of using multiple valuation methods to determine the value of Ethereum. While the increase in active users on Ethereum’s mainnet and L2 networks provides a strong case for a higher ETH price, macroeconomic conditions and market sentiment also play a role in its appreciation. Factors that could contribute to a boost in Ether price include increased adoption by businesses and consumers, the development of new applications and use cases, and regulatory clarity.
A Promising Outlook
Despite uncertainties in the short term, the long-term outlook for Ethereum remains bullish. With its continued dominance in the smart contract space and its position at the forefront of decentralized finance and non-fungible tokens, Ethereum is well-positioned to capitalize on the growth of these sectors. As Ethereum continues to focus on scaling and L2 solutions, it remains to be seen where the next rally for Ether will come from.
