Standard Chartered has released an Ethereum Investor Guide:
- Structurally, ‘value’ Ethereum at $26,000-35,000
- But for ETH to get there, BTC would need to trade at the top of their valuation range ($175,000)
- The company sees the Ethereum-Bitcoin cross doubling to 0.161, a level at which ETH's market cap would catch up to BTC's
In addition, Standard Chartered provided thoughts to support its assessment. The firm points out that Ethereum (ETH) is the second most popular crypto asset after Bitcoin and is an open-source decentralized blockchain that allows applications to be decentralized. Thus, it is not a currency like Bitcoin (BTC), but more like a financial market in which non-linear financial transactions such as lending, insurance, and exchanges can operate. This is what underlies the firm's estimates of the absolute value of ETH versus the US dollar, and their estimates of the relative value of ETH versus BTC.
To estimate ETH's valuation against the USD, Standard Chartered uses two different approaches, both of which are based on the BTC valuations outlined in their Bitcoin investor guide:
1. The ‘financial market’ versus ‘currency’ analogy: For BTC, the company compares the credit card market cap against potential transactions in the unbanked sector to arrive at a valuation. For ETH, Standard Chartered compares the value of global banks against the value of global credit-card companies to establish ETH's value relative to BTC. Based on this, the company estimates a potential value for ETH of $35,000 (10x the current level).
2. A portfolio optimization approach: Starting the optimization from the previous BTC peak (late 2017) gives an optimal allocation to crypto of around 2% of global portfolios. Given the broader value case for ETH compared to BTC, Standard Chartered believes that ETH's total market cap will catch up to BTC's over time. Based on this, they value ETH at $26,000.
The company points out that the current price of ETH (slightly below $4,000) reflects both the relative difficulty of ETH (versus BTC) and the uncertainty over its evolution. In other words, while potential returns may be greater for ETH than for BTC, risks are also higher. For this ETH valuation range to be attainable, Standard Chartered assumes that BTC would also need to trade towards the upper end of its valuation range (which they estimate at $175,000). If the dominant crypto asset (BTC) trades well, the company thinks this will benefit investor perceptions of other crypto assets.
The current transition to ETH 2.0 could transform ETH by increasing its functionality and scalability and reducing environmental concems (due to no more ‘mining’), although it could raise more complex security issues. Timelines for ETH 2.0 rollout could slip, but in the near term, decreasing net supply—as ETH is staked for ETH 2.0–should provide a price cushion.
Given these factors, Standard Chartered thinks ETH is a better buy over the medium term than BTC. The company expects the cross rate between the Ethereum and Bitcoin currency units (XET-XBT) to roughly double from current levels to 0.161, bringing ETH's total market cap in line with BTC's. Where XET-USD trades will be partly determined by where XBT-USD trades.
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About the Author
Eva Fox joined Tesmanian in 2019 to cover breaking news as an automotive journalist. The main topics that she covers are clean energy and electric vehicles. As a journalist, Eva is specialized in Tesla and topics related to the work and development of the company.