Is SOL Undervalued? 83% Discount to ETH? | Michael Nadeau

If you get to 1.8 trillion, that's about slightly under 15,000 per coin for ETH. If Solana gets into that 450 billion range, that gets you above $900.

Bankless Nation, the price of the soul token is currently trading at an 83% discount to Ether. The question is, should it be trading at a discount? We have Michael Nato on the podcast today. He is a crypto analyst who can help us answer this question, I think it is a very relevant one for investors. His lens really isn't technical. He's not a decentralization maxi. He doesn't represent tribe A or Tribe B. He just looks at current on-chain fundamentals like daily active users and fee revenue and total valued locked of these respective networks to answer the question of what should these assets be worth? A few things we discuss on today's episode. Number one, why fundamentals matter when we analyze crypto assets like Ether and Seoul. Number two, the data for 2024 and who's winning. Number three, the catalyst for Ether and the catalyst for Seoul. Number four, his price predictions for Ether and Seo this cycle. Which asset will outperform the other on a relative basis in the second half of this bull market? I won't spoil this now. You gotta wait till the end. Bankless Nation, very excited to introduce you to Michael Nato. He's the founder of the DeFi report, and he writes some of my favorite analysis in crypto. I gotta say that because his focus is old fashioned fundamentals, you know, old school on crypto. So he likes to analyze tokens, crypto assets, like equity as capital assets with cash flows. He also models the demand for crypto assets as money, and he has less of an emphasis on, you know, some of the attention metrics, let's say, the attention economy behind crypto, and more focus on overall fundamentals. Anyway, it's just a great blend to me of uh crypto native knowledge and financial analysis. And I hope the crypto world starts viewing assets, our crypto assets, the way Michael does in his reports. Uh so it's just a a solid base to figure out what's real. So, Mike, Michael, uh, what do you think of that gushing intro? I don't usually do that for my guests, but I gotta say, I'm a big fan of your reports here.

That was a gushing intro. I'm blushing uh a little bit as you can tell. Um no, it's great to be here, Ryan. Uh first time, long time. Been a fan of the show for a while. So awesome to be here with you.

Okay, well let's uh open this up with a leading question. So on the agenda, of course, we're gonna be talking about soul versus ETH. It might get a little spicy for people uh out there. In particular, you wrote a report called Should Soul be trading at an 83% discount to ETH, which is approximately what it is right now at the time of recording, what it is when you publish that report. We're gonna table that, get to that conversation in just a second. I wanna ask an overarching question to you before we begin, which is fundamentals. Are they making a comeback in crypto? And uh recall the way I just defined fundamentals as you know, kind of like cash flows as an equity analyst might view these crypto assets. We are seeing maker. This is a this is performance of maker, MKR, a token in the in the uh blue chip DeFi token. It's never really received kind of the credit fundamental uh analysts are due. It's it's had a great year uh so far. And people are talking about um maybe the rekindling of fundamentals analysis. Maybe it's fundamentals uh crypto, maybe fundamentals are cool again. Uh, what do you think? Are is our fundamentals having a moment?

I love to hear this. Um, and it is interesting to see this narrative starting to pop up uh a little bit on Twitter.

My view on fundamentals is that everything we do at the DeFi report starts with data.

So that that's always the starting board, even if it's

even if it's a meme coin, right? I think there's actually fundamentals with meme coins. You can even go in and see how many,

what's the growth of token holders?

Um, you can there's fundamentals related to social and what's happening on Twitter and things like that. So

fundamentals is a broad, a broad term.

Um, and I just think that ultimately this is all going to fundamentals.

For me, the fundamentals are easier to sort of.

Wrap your head around, I think, in a bear market.

And in this discussion today, we're going to talk a little bit about Solana

versus Ethereum.

And really what kind of brought me to Solana initially was studying it in the bear market. And I think that's where there's it's actually easier to see

projects,

as Warren Buffett likes to say, when the tide goes out, you can see who's kind of been swimming naked.

And you can kind of see that washout and you can see what might last in a bear market.

Um, but I love to see this um at the DeFi report. We work with some of the beta companies in this space that are very focused on fundamentals.

We believe

ultimately this is where the industry is heading. So it's great to see

uh this narrative out there. Maker DAO is obviously one of the projects that has fantastic fundamentals uh in the space. So

That's fantastic. Yeah. It's it's interesting, somewhat ironic that we mentioned as you know, fundamentals coming back in style as a narrative, which is interesting. And that does seem to be the way that that crypto markets uh fluctuate. But what is the just the general thesis behind fundamentals? Is it as simple as, hey, like in the long term, that Buffett quote markets are kind of a weighing machine in the short term? He didn't say this, but maybe they're more of a narrative game. Uh, but in the long run, fundamentals actually matter. Is that is it just that simple with respect to why you view crypto assets from a fundamentals perspective, that they're important in the long run and they will reflect in price over the longest period of time?

yes, it it is basically that. But I think that you know, the market needs to have some sort of KPIs for relative, you know, valuation. Like I think

today, if you look at the crypto markets, like I don't think anybody's making any argument that like,

Crypto assets are trading on cash flows.

And but ultimately, I believe that is that is where where we're going.

Even though we're not trading on cash flows, we do have these like sort of benchmarks in the market. You've got Bitcoin and Ethereum as sort of the two like alpha assets.

And then everything is sort of a relative valuation on those two assets.

And so there's there's always going to be fundamentals and KPIs that the market needs to understand.

I think what we're trying to sort of work through now is like what are those KPIs?

You know, when you go back and study sort of how

security analysis came about,

these are really social constructs, right? I think it's important for people to realize that

the market sort of coalesces around a shared set of ideas

because we we can make sense of them. Um and the discount cash flow is sort of how we did this with stocks and equities.

Is discount cash flow going to be the thing we do use for relative analysis in crypto?

Maybe, maybe, maybe not.

But I believe we are in this process of sort of sorting that out today. So

It's funny that kind of the the metagame here is not only do you have to believe in fundamentals, you have to you have to get all of the other investors who are buying crypto assets to also believe in fundamentals, right? As you sort of define it. So it's almost like a coordination game, a consensus game. One reason I think to be more bullish on fundamentals, who knows, maybe not this cycle, but in the months and years to come is uh TradFi's growing involvement in crypto. This is how they're used to viewing traditional capital assets, and they're going to, by default, bring that lens into crypto. I've actually been super impressed with some of the analysis I've seen from shops like Van Eck, which like they dive into crypto assets, and it's really it's from a fundamentals perspective. I mean, you could disagree with the variables, you can adjust them, you can you like say those assumptions are wrong. That that's all fair game. But the way they're actually coming up with their price predictions and analysis, it's all very much fundamentals based.

100%. And there's there's

there's different fundamentals for different types of assets as well, right? You don't use the same metrics for

if you're analyzing a basket of banks as you would for commodities or some other asset class.

Crypto is a new asset class. And so you do have,

you know, data based fundamentals, but then

crypto is very social, right? It lives on the internet, it kind of lives on crypto Twitter.

So there's all these other nuances that get folded into fundamental analysis in crypto that is unique to this asset class.

So the reason I led with those questions is because I want bankless listeners to hear how you think about assets and your approach to investing in general. And I think you're you're bringing bringing this framing to the conversation we're about to have. And um that's why I think this conversation is so valuable. So you wrote an analysis report. I think you published this uh last week that kind of caught my eye. I I read through this, and I think it's a great subject to have an uh episode on and actually apply what we just heard about fundamentals to two assets that have really been taking a lot of mind share this cycle. So ether and Solana. And uh the title of this report is um like as it's a good title, well written, um, made me click right away. Should Seoul be trading at an 83% discount to ether? So you're viewing this from a market cap perspective and the current market cap, fully diluted, I assume, uh, soul, Solana is trading at an 83% discount to ETH. And should it be? That's the question. And you call this a data-driven investigation. And the reason I wanted to have you on to talk about this rather than somebody else is because I think you can bring a objective, like neutral, hey, like this is what the data says, perspective to the analysis. And it's like less tribal infighting. There's less of this debate between decentralization and centralization. I'm not saying that those debates don't matter. I'm just saying your lens is a little less political, I would say, and it's a bit more objective with respect to the data. So, um, high level, as we get into the the key metrics and analysis, what what what are you actually analyzing here? Like what are the core uh data points that that you look at when you look at L1 tokens like Ether and Solana?

Yeah. So um, and this this kind of like comparison between these two L1s in particular goes back to like

um the end of 2022 when after FTX, when we really started taking a hard look

at Solana. And I was comparing Solana

at that time to like ETH

back in like January of 2018. And I was seeing some similarities in the data.

There.

And really, what I was looking at was like total value locked.

Solana versus versus Ethereum back then. I was looking at the number of users,

looking at the number of transactions,

looking at the number of developers and sort of the application activity,