Ethereum is Hilariously Underpriced | Will SOL Flip ETH?

Hey guys, welcome to Bakeless Takes. We've got a few topics for you. First of all, David, I want to talk about Ethereum. Ethereum right now is hilariously underpriced, my friend. I'm just calling it. I've gotten to the stage where I'm just a bit angry about this, and we're gonna talk about yeah, there's a fundamentals mismatch between the market price and what Ethereum's actually doing. We've got Bitcoin above 40k, we got token prices surging.

And I want to talk to you about why I think ETH should also be surging. David, it's the market that's wrong. It's not us. What else we got?

Speaking of fundamentals, does Solana have any?

Oh.

A notable crypto investor said that there is a 25% chance of Solana flipping Ethereum. How did he get to this number? We will do our best to unpack that.

Lastly, I want to tell you why I'm starting to hate debating the word decentralized or decentralization. I love the concept, but I hate what the word has become and what I think we should use instead. As always, these are the takes this week from David and myself. If you don't like our takes, there's other episodes for you. But this is where we cram it all into one concise episode. David, we got a shout out from one of our friends and sponsors.

Ryan,

why is Ethereum hilariously underpriced? This is a tweet you put out not too long ago. Uh, what do you mean by this?

Dude, I'm just sick of it. I think I think somebody has to say it. Somebody has to start getting loud or louder on Twitter because uh it's just not right, David. I feel like Ethereum is hilariously underpriced at 2.2 K right now. It's very clear with Bitcoin above 40k, we are now in the bull market, and I'm seeing a lot of price pumping on

like what ifs types of tokens. Other

What what if price movements? Yeah.

yeah, and I think Ethereum has actual fundamentals. So I spent some time enumerating the fundamentals, and again, I don't know.

There there's some price point at which like Ethereum is is fairly priced, but in a bull market, I don't think that price is 2.2k, right? I think it's a lot higher. I spent some time enumerating this and contrasting Ethereum right now versus the start of the last bull cycle. And uh I I remember the start of the last bull cycle. Um, Bitcoin had its run, DeFi tokens had its run. And at some point in time, a number of us, myself included, just said enough is enough. ETH at like 200 is hilarious. It is stupid. And uh we I started this thread at this time to just

Track the number as it went up. Started at 200, then it went to 300, then it went to 500, and then above a thousand. It started to become more fairly priced, you know. And I started tapered off after things got above 2K. Where I am feeling similarly about Ethereum right now. And here's what's different from last cycle to this cycle. David, first of all, Ethereum now makes 2.7 billion

in annualized profits.

That is fee revenue collected versus ether issued.

Yeah. Right. And uh you can see all of this on ultrasound money, by the way. And if you contrast this with like if you do like a price to earnings, I mean, how much are you paying for uh Ether market cap versus how much it's earning in terms of profits at $2.7 billion? The PE ratio, which is a common metric used in uh the stock market, common metric used for any capital asset, whether you're renting a house or you're trying to value a stock, the PE ratio of Ethereum right now is 98.

Mm-hmm.

Okay.

That is relatively low. Contrast that with Amazon. Amazon's about 75 right now. So the amount that you're paying for one dollar of earnings is $75 with Amazon. Okay.

What that means, uh 98 to 75, is that the market is pricing in that Ethereum will grow at least 25% faster than Amazon, to put it like reductively.

Yeah, 25%. Is that a conservative estimate to you? Feels that way to me.

If Amazon is a massive company, how do you grow that thing very

I know. So you I mean, if you look at other um high tech stocks, uh Salesforce right now, you know what their PE is, David? I just like

I I think like I saw on Netflix at one point in time was at 400.

Netflix goes to 400. Salesforce right now, like uh customer relationship management software, software as a service, you know, it's been 163 is their P PE ratio.

Um that's

Zoom is 150

also

of

dumb. I mean, maybe that's fair, but something is dumb here because Ethereum's only 98.

the global settlement system for the world, potentially. That's the the total addressable market we're playing at is only 98. And to me, that seems ludicrous. Compare that to last cycle, all right, David. We like, I don't know what our PE was like infinity. It was actually in the negative because Ethereum wasn't even profitable. And now it's throwing off 2.7 billion in cash. And might I remind folks, the only profitable chain.

All right. So this is not like the other chain.

Oh, Tron.

Yeah. Shout out to

Justin's son, uh Tron. So that that's my first point. I think that is completely different than last cycle. Also, David, I was looking at Ultrasound Money yet again, which is a fantastic place to go view all of the uh Ethereum fundamentals. And you know who are the highest block space buyers? Oh, let me check from last cycle.

Other

protocols.

Yes, and a new entrant here. Okay. So I looked at the past seven days. If you do that,

Of the top 10 block space buyers, consumers of Ethereum BlockSpace, five of those were layer twos

Hmm.

over the past seven days.

Mm-hmm.

That is an entirely net new demand agent, consumer of Ethereum BlockSpace that we didn't have in 2020, the start of the last bull run.

Entire blockchains are now purchasing Ethereum BlockSpace.

All right. No other chain has this, by the way. That is bullish, my friend. Like so Arbitram can bundle hundreds of thousands, potentially millions of transactions into one concise atomic blockchain purchase of Ethereum Block Space.

You have entire chains that are new purchasing agents uh for Ethereum Block Space right now. That is bullish. Uh, I think, in particular, compared to last cycle, is pretty unique to uh Ethereum at this point.

And I would also add Arbitrum, Polygon, ZK Sync, Optimism, they all have their chain development kit, which is about the freedom to fork their chain development kit. So at that, anyone can be a chain that settles on Ethereum. Anyone can spin up a protocol that consumes Ethereum block space. So these B D teams of these layer twos are also working at establishing more and more network effects around the actual settlement of all chains into the same shared block space. And so if the success of these BD teams is at all meaningful, then all of a sudden they're spinning up more chains that are consuming more block space.

Yeah, I mean, how many net new layer twos do you think will get this cycle, David?

more than I can think of today.

Right? Like at least hundreds. So those are all net new buyers of Ethereum Block Space, and there will be some power law winners there. Um, another point that's different from last cycle in 2020.

Ethereum is going to be deflationary this entire cycle.

Right.

Okay.

Yes.

It already is. Last time it inflated at about four percent. So between three and four percent, depending on what the burn was during kind of the the most uh this time it'll be at least negative point five percent deflationary for supply.

Never seen the full a full market cycle where Ethereum was deflationary. We had EIP, we had the merge happen late 2022,

Yeah.

like at the end of the bull market.

We have never seen, like when all of the massive amounts of demand for Ethereum block space was happening, was all pre-merge. We have never seen a full cycle of complete Ethereum deflation. We do not know how how hot the burn can get.