https://twitter.com/dshin_eth/status/1478696635354214406
Ethereum Investment Thesis 2022 from a Valuation Standpoint.
1/ The Merge. Expected to be shipped in Q2, ETH's tokenomics will greatly improve as it emerge as the only sustainably deflationary native L1 asset in the entire crypto industry. An asset which becomes increasingly valuable with time. $ETH is truly Ultrasound.
2/ Today, approximately 5.4 million $ETH are being issued to miners every year, and most of these mining rewards are being sold into the open market to cover for unavoidable mining expenses (electricity, rent, maintenance and other overhead costs).
3/ Luckily, the Merge will drop the $ETH issuance to a measly 0.5m ETH/yr. So what you are about to witness is a 90%+ issuance reduction, a whooping 5 million $ETH which is permanently stopped from being sold into the open market every single year. A supply shock crisis.
4/ Another interesting dynamic of the #Merge is that it essentially transfers the right to block creations from hardware miners to individual $ETH validators.
5/ This means that miners whom previously made repeated purchases of the mining rigs to obtain the right to block creations will now purchase $ETH instead. ETH is the new #mining rig.
6/ Calculations made by
depicts just how powerful the demand shift for ETH will be.
https://docs.google.com/spreadsheets/d/1vrK5sY5ooq-F8dcyRhmmAJ5YtgkvWKWP3OfGCZIYxSA/edit#gid=0
7/ At a predicted 11%+ APY for ETH staking straight out of the Merge, the competition is on to reach ETH holders from #DeFi protocols, Ethereum users and the Ethereum #Staking contract. A demand shock crisis.
8/ Economics 101: A contraction in supply with an expansion in the demand always leads to a new equilibrium, one with a higher price. Considering the profound shift in the demand and supply, this is undoubtable super bullish for $ETH.
9/ To understand just how undervalued $ETH is, we calculate ETH's P/E ratio post-Merge on varying assumptions to compare it to the traditional markets such as the S&P500 or the NASDAQ.
10/ For simplicity, extrapolate post #EIP1559's ETH burn rate to get 2.4% deflation, while estimating the staking reward to be 11.7% short-term and 5.5% long-term. Then we calculate $ETH's PER using the formula below, finding that it should be between 8.34 and 17.74.
11/ When compared with the S&P500 and NASDAQ100 whose PER sits at 29.33 and 39.63 respectively, ETH is being undervalued by a factor of 2~3.
12/ However, a better comparison would be with similar tech growth stocks (i.e. $TSLA $GOOG $SQ), which are valued at much higher multiples, often at 100+ PER. This signals that $ETH is potentially being undervalued by an approximate factor of 10.