GM, This is the Milk Road. We show you 1-2 cool things about crypto, in less than 5 minutes a day.
In Today's Email:
- 📈 Why ETH should be priced at $5k+
- 🤑 Put a portion of your paycheck into crypto
- 🍣 Sushiswap Creator hints at his next thing
Why ETH Should be Priced at $5k+
One reason that traditional investors like Warren Buffett have called Bitcoin “rat poison” is because they are old and out of touch.
No, wait,that’s not it.
It’s because they made a living investing in productive assets that can be valued based on real cash flows.
And you’ve heard it before... “It’s all just speculation”, “there’s no fundamentals”, “you’re going to go broke, shaan”
Maybe they’re right.
Or maybe not.
Here’s a hot take from Ryan Allis, (guy who runs a crypto quant hedge fund and went on Bankless yesterday), who thinks that ETH should be valued at $5,000+ based on a discounted cashflow analysis.
To understand his price model.. You have to understand a few things:
#1 - “Ethereum has cash flows”
Every transaction has a fee. In January, those fees added up to ~$1.3B
The fee is split into 2 parts:
- Base fee = like ordering food at the restaurant
- Tip fee = like tipping your waiter
The tips go 100% to the miner.
So who gets the base fee? Does that get split to every ETH holder? Well…actually..in a way…yes.
The base fee gets “burned”. Meaning, it’s taken out of the supply of ETH.
Supply goes down, price of ETH goes up (so it benefits every ETH holder).
If you are into the stock market, this is like when a company does a “share buyback”. They use their profits to buy shares out of the market, which drives up the price.
So - check this out: There’s a website called watchtheburn.com (hell of a name) where you can see how much ETH has been burned everyday. In the past 24 hours alone, $36m+ of ETH has been burned
This is why Justin Drake created the theory (or meme) calling ETH “Ultra Sound Money”
Ok, so today - 70% of revenue gets burned. And that’s like a stock buy-back. Got it.
But what about the other 30%?
Today it goes to miners…but soon (the “ETH 2.0” launch) it will get paid to long term ETH holders (stakers).
This means that ETH now has real, measurable cashflows (suck it warren buffett!).
#2 - Wait a minute. Stock buybacks? Dividends? We know how to value companies with those!
Ryan went to Harvard Business School (great school, never been), so he knows how to do a Discounted Cash Flow (DCF) model.
First thing he points out – Ethereum is like no other DCF he’s ever done… because there are no expenses.
There are no salaries, no servers it runs. So 100% of the revenue is profit.
Here’s a link to the model (it’s a google sheet) so you can play with it yourself.
Long story short, his model spits out that the current value for ETH should be ~$10k.
Note, the model assumes a 25% annual growth rate and a 35x P/E ratio (the average of the SP500)
So yea, Ryan’s analysis is a cool way to use fundamentals to see that ETH might be ~3-5x undervalued.
(But for the love of God, do your own research and make your own decisions!)
He also makes it clear that there are still risks:
- L2s (like polygon, aribtrum etc.) could become 95% of the transaction volume because they have lower fees
- Another L1 could beat ETH (eg. solana, terra)
Coinbase Lets You Get Paid In Crypto
I remember back in ~2013, I had some friends apply to work at Coinbase.
It was just a startup back then for weird crypto people (I am now a weird crypto person)
My friend told me when he got his job offer, he could take his wage in either dollars or bitcoin (or a mix of both).
He asked me what he should do - and I said, take 60% cash, 40% bitcoin, because if you don’t believe in bitcoin, why are you working at Coinbase??
He ended up going all cash, and missed out on like $25m+ worth of upside. The lesson? Always listen to me, and never listen to your gut.
Anyways, fast forward to today - and Coinbase just helped the mayor of NYC get his paycheck in crypto.
This is cool and I hope more people opt into this.. But in the short term it can be painful with Bitcoin’s volatility.
For example, you might be like Odell Beckham (NFL star), who took his $750k paycheck in bitcoin and it’s currently worth $412k (but he had to pay california taxes on the $750k, ouch)
Note: a bunch of people commented on the thread that those numbers aren't exactly true...even if the numbers aren't exactly right, it's still clear the cash would've been worth more today than the btc (it's possible Cash App paid him a huge marketing fee too, but you or I ain't getting that 😂)
SushiSwap Creator Hints at his next project
Any time one of these “DeFi influencers” does something, it’s worth keeping an eye on.
I turned twitter notifications ON for this.
- Shaan "ultrasound" Puri
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