ETH Research Update. ETH: Updating the JellyC Forecast: $4,079 Price Target
Executive Summary
As of July 2nd, the price of Ethereum (ETH) is $3,450 with a market capitalization of $414 billion. As the second-largest cryptocurrency, ETH accounts for approximately one-third of Bitcoin’s market capitalization, which stands at $1.24 trillion.
Ethereum continues to be a leading platform for decentralized applications and smart contracts. With recent developments, including the Securities and Exchange Commission (SEC) closing the investigation into whether ETH is a security [1], as well as the approval of an ETH exchange-traded fund (ETF)[2], the team at JellyC has updated their price target for ETH.
Key Insights
The valuation of ETH is more nuanced than other digital assets, as it functions as both ultra sound money and a technology business with various drivers of value. These include:
Strong net profit margin growth post-merge Robust user growth
Regulatory head-start on competitors
Upcoming launch of the approved ETH ETF Restaking movement
Ethereum’s Financials (Through June 21 2024)
Ethereum’s Financials. All currency in USD millions (m), Source: Token Terminal, JellyC
All currency in USD millions (m), Source: Token Terminal, JellyC
Financial Metrics: ETH’s Profit Margin Expanding, but Volatile
Income of $2.4B in 2023: with $1.6B generated year-to-date [5].
Net Profit $623M in 2023: net fees minus token incentives [6].
Net Profit margin 26% for 2023 which compares favourably with 17.3% for Goldman Sachs[7].
Net profit is volatile but has improved since “The Merge” in September 2022[8].
Total Value Locked (TVL): Currently $58.9B[9] reflects security and growth over the past year (after peaking > $100B in 2021 prior to “The Merge”).
Operating and Ecosystem Metrics: Strong User Growth, Stable Core Developers
Monthly Active users (MAU) reached 7.3M in May 2024, up from an average of 5.2M in 2023.
The number of unique ETH addresses with a non-zero balance has been steadily growing at 5% per quarter over the past three years, now exceeding 123M[5].
The broader developer community has decreased over time as the project has matured, the core contributing developers have remained stable in Q2 2024.
The broader ETH ecosystem, including layer 2 solutions, secures over $700B in total value and has an overall user base exceeding 12 million.
Innovation in the form of restaking has seen significant momentum, Eigen layer completed stage 2 launch in April 2024 increasing yields.
Regulation: Ethereum’s Head Start on Competitors
On June 18th, 2024, the SEC officially dropped its investigation into whether ETH constituted a security, effectively clearing the asset of regulatory uncertainty.
The SEC's decision to approve the ETH ETF, coupled with the closure of the investigation, implicitly designates ETH as a commodity, indicating a significant shift in the regulatory landscape. This is a significant development that will provide ETH a head start over competitors like Solana.
ETH ETF Net Inflows: Anticipated Significant Inflows
The launch of an Ethereum ETF is expected to be the next major catalyst for ETH price appreciation, like the impact of Bitcoin ETFs upon their debut in January 2024.
JellyC forecasts the U.S. ETH ETF inflows are likely to be 20% of the U.S. BTC ETFs net flows. This is based off trading data comparing Hong Kong’s recent ETH and BTC ETF’s[10].
U.S. BTC ETF inflows total $14.5B as of 25th June 2024. 20% of $14.5B equates to $2.9B of net U.S. ETH ETF flows over the initial 6 months.
ETH Multiplier: The Effects of Flows
Since January 11th, 2024, U.S. Bitcoin ETFs have seen significant inflows, totalling $14.5 billion. This surge in investment has coincided with an appreciation in Bitcoin's value, rising from $44,000 to $63,350.
This represents a market capitalization increase of approximately $382 billion. This translates to a multiplier effect of [382/14.5] 26.3 times the initial investment.
All things being equal, ETF inflows result in a 26.3X market cap increase.
We use this multiplier as our ETH ETF base case. There is a [strong] argument that the multiplier should be adjusted higher for Ethereum as it has a significantly smaller market cap, approx. 1/3 of BTC. Therefore, any flows are likely to have a more material impact on price. However, at JellyC we like to err on the side of caution, therefore we take a conservative approach to the ETH multiplier.
ETH ETF Flow Conclusion
Applying the ETH multiplier of 26.3X, we add an additional [$2.9B*26.3] $76.3B to the existing market cap of $414B, giving us a total of $490.3B. Using the existing circulating supply of 120.2M over the next 6 months, we arrive at a price target of [490.3/120.2] $4079 for ETH. This represents an increase in the price of ETH of 18%.
Editors Note
We acknowledge many market participants have adopted a less conservative approach, predicting price increases between 30 & 60% higher. We also acknowledge that global macro conditions may influence the price of ETH.
[1] https://consensys.io/blog/sec-closes-ethereum-2-0-investigation-will-not-pursue-ethereum-enforcement
[2] At the time of writing the ETH ETFs are likely to start trading early July 2024, source Eric Balchunas
[3] Total transaction fees on the ETH network
[4] New tokens issued (non-cash) compensating validators to secure network.
[5] Token Terminal: https://tokenterminal.com/terminal/financial-statements/ethereum
[6] Net profit = Net Fees, total transactions that are burned (net of validator fees) – block rewards
[7] Source: https://www.macrotrends.net/stocks/charts/GS/goldman-sachs/net-profit-margin
[8] ETH’s incentives were slashed, and energy consumption reduced by 99.95%, as ETH moved to Proof of Stake (PoS) https://ethereum.org/en/roadmap/merge/
[9] Artemis: https://app.artemis.xyz/project/ethereum?tab=fundamentals
[10] Glass node reports Hong Kong ETF’s have seen 42.08m net inflows to ETH, vs 205.59m net flows into BTC, equating to 20% ratio as at 27th June.
DISCLAIMER
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