- A Summary of Ethereum’s Parts
Digital assets are ripping. Overall market capitalization for the entire space is now $176bn. Digital assets are well over $100bn in additional value from the lows of $67bn in July 2017, representing a +62% broad based increase.
Digital assets are ripping. Overall market capitalization for the entire space is now $176bn. Digital assets are well over $100bn in additional value from the lows of $67bn in July 2017, representing a +62% broad based increase. Prior to, and through Ethereum’s peak price of $414.76 back in June, we have seen an explosion of growth amongst token driven projects based on Ethereum’s ERC20/223 standard, which offers direct leverage of the Ethereum blockchain protocol by giving project developers a standardized fungibility for their app-token. During the June highs, the total market cap of all Ethereum based crypto assets stood at $2.8bn. As of publishing this note, the market cap of all Ethereum based crypto assets is now at $8.6bn, representing a +67% increase, which outpaces the overall market capitalization growth rate by 5% (62% vs. 67%). Crypto assets are defined as independent application protocols built on an existing blockchain platform. Other blockchain protocols that have proven native asset creation platforms are: Neo, Omni, Bitshares, Nxt, and Waves.
Web 3.0 Amazon Approach
Ethereum’s network is poised to be the digital content distributor of the 3rd internet revolution. In a manner unique to Amazon’s content aggregation model, the Ethereum community is developing applications and systems that not only distribute digital content, but also manufacture it as well. At present, of all crypto assets, over 86% of total market cap belongs to Ethereum based crypto assets. Currently, 18 of the top 20 crypto-assets are Ethereum based, with a combined market cap of $6.1bn. Both Omisego (OMG) and Qtum (QTUM) are currently over $1.2bn and $1.05bn, respectively. The variety of projects is encouraging and the pipeline for newly funded concepts is incredibly rich. If infrastructure is an important aspect of growth in the Web3.0 ecosystem, we strongly believe Ethereum has a tremendous head start on its competition. Most would cite the competition as being: NEO, Bitshares, Ethereum Classic, Tezos amongst several other neophyte protocols.
The explosion of crowdfunding through Ethereum based tokens has dramatically changed the landscape and how capital markets think. The new token economy has provided over $2bn in total capital raised across all platforms, YTD, with over 80% attributed to Ethereum based crypto assets. Many have noted the regulatory risks and sheer ignorance of the general investor toward what they are purchasing (is a token a security or a right to any asset of the company?).
Crowdfunding through Ethereum based tokens has dramatically changed the landscape and how capital markets think.
Our research notes that far too many “dreams” of a new concept have been overcapitalized vs. the project’s stage and these projects carry a high likelihood of failure. While there is no doubt this new approach to capital raising will produce some unfortunate losers, the focus revolves around a popcorn theory of finance approach, whereby over 10 disciplined bets, the cost of 8–9 losers will not outweigh the gains from 1–2 winners. We believe in a more selective approach, which includes filtering for active or near active protocol (MVP, Alpha or Beta product) with a clear utility for the native token and management with a solid history and track record of accountability and performance.
Summary of the Parts
This stalemate in a sum-of-the-parts valuation will have to break in one direction or another. Either the overcrowded Ethereum asset factory will cool off and collapse, offering very little accretive value to the Ethereum network, or the crypto asset market cap is priced to include robust growth and ETH has yet to price in the additional network value. If the former is accurate, the price of ETH should be challenged at $415 all-time-high levels until the scaling solutions are handled in the Metropolis hard fork. If the latter is accurate and the Ethereum network is undervalued, ETH should see a +15–20% increase in market capitalization (price would be ~$450-$470) to reflect the accretive value of the digital content network. We believe the existing Ethereum based crypto assets maybe slightly overvalued vs. the market. That said, even if one applied a 30% discount to the existing Ethereum based assets, the value of future projects and the near-term network effects will more than offset current premiums. Current ETH valuations as a sum-of-the-parts is flagging Ethereum’s underperformance. In summary, select ETH based crypto assets without realistic timelines and the capital will likely sell-off and rotate into the roughly 25 ETH projects seeking capital into year end. Stay long ETH.
January 24, 2018
Originally published at www.anchordigital.io.
- Date of publication:
- Sat, 02/10/2018 - 17:35
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