The recent performance of the altcoin market can only be described as "depressed", and the long-awaited "altcoin season" has yet to break out. StarEx exchange analysts believe that there are many reasons for this phenomenon. In addition to the large number of altcoins, high market value, slow ecological development, and cash-out pressure brought by the lifting of the ban, the weakness of Ethereum, the "king of altcoins", is undoubtedly a key factor. If ETH does not rise, it will be even more difficult for other altcoins to rise.
Bitcoin's current market value is close to $2 trillion. Due to its characteristics as a value storage tool, it is gradually approaching the status of "digital gold". The market value of physical gold is about $18 trillion. Against the backdrop of the ever-expanding debt scale of major central banks around the world and the expectation of continued money printing, Bitcoin still has considerable room for imagination. From a technical perspective, after years of verification, Bitcoin's technical risks are relatively minimal, and the security of its network makes it a true underlying asset.
Analysts at StarEx Exchange believe that the current situation of Ethereum is more complicated. Ethereum's current market value is about 400 billion US dollars, and its positioning is more inclined to ecological practicality. However, from the perspective of long-term capital allocation, the question of whether Ethereum is overvalued has triggered widespread discussion in the market. Since Ethereum switched to the PoS (Proof of Stake) consensus mechanism and vigorously developed Layer 2 (L2) as its ecological position, it has made considerable progress from the perspective of technology and infrastructure. However, the role of Ethereum's native token ETH has become increasingly embarrassing:
Production costs are reduced and support is lost: After switching to PoS, the production cost of ETH has been greatly reduced, and the cost support brought by mining no longer exists;
Ecosystem is divided by L2: Layer 2 is called the "son" of Ethereum, but these L2s have seized most of Ethereum's ecological traffic. Although ETH has reduced some of its circulation through the destruction mechanism, the amount of destruction is relatively limited. Moreover, some L2s have begun to choose stablecoins (such as USDC) as a means of payment for transaction fees, further weakening the role of ETH. For example, Ethereum's largest L2 Base supports the use of USDC to pay gas fees;
Weakened status of transaction medium: In on-chain transactions, stablecoins such as USDT and USDC are obviously more popular, which further squeezes the use cases of ETH;
Staking returns are not attractive enough: Taking Lido as an example, the annualized yield on ETH staking it provides is only 3%, which is even lower than the yield on US Treasury bonds, and it is even more difficult to match the volatility risk of ETH itself.
In this regard, the latest paper by well-known industry figure Pfeffer analyzed the potential valuation model of ETH and put forward some thought-provoking views.
Cash Flow Asset Perspective: If ETH is viewed as a cash flow asset, based on generous assumptions (such as issuance is net neutral and the average growth rate is 5%), ETH's current valuation of $400 billion looks severely overvalued regardless of the discount rate used.
Limitations of the “currency premium” valuation: Although ETH is often regarded as the currency in the blockchain field, it is not even the de facto unit of account within the Ethereum ecosystem. Stablecoins (such as USDT, USDC) are more widely used payment media. Even if one tries to use the “currency premium” model to support the high valuation of ETH, based on the “GDP” on the Ethereum chain (the annualized on-chain transaction volume in the past six months is about US$2.8 billion), this valuation still appears to be inflated, even 1,000 times beyond the reasonable range.
The dilemma of staking and DeFi income: As a native Internet commodity, although ETH can obtain income by participating in DeFi through staking, the annualized return is only 3%, which cannot even cover the risks brought by its intraday price fluctuations.
Analysts at StarEx Exchange believe that Pfeffer's paper provides an in-depth analysis of ETH's valuation from an academic and financial perspective. Although it does not take into account the impact of market consensus and crypto beliefs on ETH prices, ETH's current situation is indeed worrying: If ETH cannot get rid of its current weak state, it will be difficult for the altcoin market to see a real outbreak.
Looking at the SOL ecosystem, from meme coins to the currently popular AI Agent, hot topics, innovations, concepts, and ecosystems are emerging one after another. ETH does need to change.
