Joey Krug, Co-Chief Investment Officer at blockchain-focused investment firm Pantera Capital Management LP, explained in his firm’s most recent monthly newsletter why Ethereum (ETH) is undervalued.

In the January 2021 issue of Pantera Blockchain Letter, which was published on Thursday (January 14), Krug started by giving an introduction to Ethereum and its ecosystem:

Ethereum is the leading asset in the cryptocurrency space for developers who want to write smart contracts and decentralized finance (DeFi) applications. It’s the base money collateral for this new financial system. …

With Ethereum, anyone can participate in or even create a new financial market in a few clicks. You can take out a loan at 3am on a Saturday night if you want, and pay it back the following Sunday. Instead of needing an exchange or OTC desk, you can swap from one asset to another using sites like 1inch and Matcha, and often get a better price. And you can send someone digital dollars 24x7x365 in 30 to 60 seconds, and they actually receive it in that timeframe too…

… now we’re in the era of Ethereum actually being very useful and having found product market fit for people within crypto (2019–21). Over the course of this year, I believe this growth will continue and Ethereum will provide even more value for crypto users as a platform for decentralized exchanges (DEX’s), lending protocols, synthetic asset trading protocols, etc…

Next, Krug talked about the things that make Ethereum such an interesting and undervalued asset:

Long run, Ethereum could potentially even be a deflationary asset that earns fee revenue, is used as collateral, and is used to pay fees. Each of these properties alone make it a fascinating asset from an investment standpoint, but combined they make it unlike anything else in the market. The implied P/E multiple based on current transaction fees is about 79, and for something where underlying usage is growing 25x (total value in DeFi) — 100x (DEX’s) year over year, that feels incredibly low compared to assets in the equities markets...”

Finally, Keug listed several positive catalysts that make Pantera Capital “very bullish on Ethereum” and feel confident that the Ether (ETH) price is header higher this year:

  • Ethereum is currently down 37% from its all-time high and we believe undervalued on a relative basis to Bitcoin… we’re overweight Ethereum. Bitcoin dominance has been hitting above 70% recently, which tends to be at the higher end of its range in recent years, and as the bull market continues, we think people will take some of their Bitcoin gains and roll them into Ethereum.
  • … once CME ETH futures launch, it legitimizes Ethereum as something institutional investors can own, and it’s actually a fairly easy bucket for them to allocate to (it fits in their tech disruption buckets).
  • … as more and more holders stake their ETH in Ethereum 2.0, that locks up Ethereum, which means less sell pressure on the price.”

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.