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Crypto: Ether is worth more than $6,000, based on this valuation model

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Ether is valued at $6,128, or about 180% of the crypto’s current price, based on a discounted cash-flow model, as Ethereum’s upcoming major upgrade could convert the cryptocurrency into an “equity-like instrument,” according to a recent report by Bloomberg Intelligence. 

The cryptocurrency
ETHUSD,
-1.19%

was recently trading at around $3,452, down 0.2% over the past 24 hours, according to CoinDesk data. 

Ethereum’s upgrade, known as the “Merge,” will shift the blockchain from proof-of-work to proof-of-stake, a consensus mechanism where the so-called validators contribute, or “stake”, their cryptocurrencies to verify transactions. Currently, under the proof-of-work mechanism, Ethereum uses mining where miners compete with each other to solve complicated math puzzles to validate transactions. 

Upon completion of the upgrade, stakers of ether will be entitled to a portion of the future revenue, or transaction fees generated on the network. Meanwhile, as blockchains have no direct cost, the revenue represents profits. This allows the use of traditional financial ratios such as P/E multiples,  the Bloomberg Intelligence report noted. 

“If demand for blockspace and total fees paid increases, stakers will enjoy both higher payouts and reduced issuance, with the opposite also true,” the report wrote. 

Read: Ethereum’s major upgrade is coming. Should you be more bullish on it than bitcoin?

Ethereum’s transaction fees rose to $9.8 billion in 2021, 16 times the 2020 number, as the decentralized finance, or DeFi, and non-fungible tokens, or NFT space boomed, while most of DeFi and NFT activities are hosted on Ethereum. 

The report estimated Ethereum would generate $12.7 billion in 2022, up 30% from 2021. It also projected a 30% annual rise in cash flow over the next three years before decay to a terminal growth rate in 2035.

Based on the data, the report arrived at an ether value of $6,128, $5,539, and $9,328 using three different discounted cash flow models, with an average of $6,998, the report noted. 

Crypto exchange-traded products 

Assets under management in crypto exchange-traded products, or ETPs, could top $120 billion by 2028, driven by increasing institutional demand and changes in U.S. regulations, according to the same report. The AUM of crypto ETPs currently stands at around $60 billion.

If a spot bitcoin
BTCUSD,
-0.83%

ETF gains regulatory approval in the United States by the end of 2023, there is “likely to be tens of billions in assets added to crypto funds” in the few years following that, the report noted. 

Institutions taking crypto positions rose to 52% in 2021, up from 33% in 2019, according to the report. 

Meanwhile, assets under management in bitcoin exchange-traded products topped 200,000 bitcoin in March, reaching an all-time high, according to a Monday report by Arcane Research.  Such funds saw net inflows of 12,272 bitcoin in March, making it the strongest month since November last year. 

“Overall, the appetite among investors seeking to add BTC exposure through traditional vehicles has grown in all jurisdictions, indicating a more positive sentiment with investors seeking to allocate for further upside,” the report wrote. 

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