Following bitcoin’s surge to hit a new all-time high earlier in January, ethereum, the second largest cryptocurrency by market cap, neared $1,440 on Tuesday to inch toward the same feat — but that could just be the beginning of a 650% explosion, according to one strategy firm.
Fundstrat Global Advisors’ cryptocurrency team issued an updated $10,500 price target for ether, implying a 650% upside as the ether-powered Ethereum blockchain continues to fuel more real world applications like smart contracts, stablecoins pegged to the dollar, and the burgeoning decentralized finance space.
“We continue to believe Ethereum fundamentals are incredibly strong and think [ethereum] represents the best risk/reward investment play in crypto,” Fundstrat analysts wrote in a new note published Tuesday night.
Much like fund flows from institutional investors being used as a signal to mark a rising shift from the market to finally endorse bitcoin as a so-called “digital gold,” Fundstrat points to Ethereum’s rising network fees to justify its $10,500 price target. Ethereum, which collects network fees for powering the projects and applications that run on its blockchain, has seen an explosion in activity in 2021 as more developers tap into its existing blockchain tech.
As Fundstrat explains, Ethereum fees totaled $600 million in 2020. Through 17 days in 2021, fees have already topped $180 million, putting it on pace to achieve $3.9 billion this year. Comparing the growth to valuations and multiples in the cloud space that Ethereum’s blockchain technology appears poised to disrupt, Fundstrat posits the crypto deserves a multiple comparable to early cloud disrupters and uses the Bessemer Venture Partners Emerging Cloud Index as a proxy.
With fees set to grow more than 500% in 2021 if trends hold, Fundstrat argues that ether appears vastly undervalued against cloud index peers.
“Trading at [a $150 billion] market cap, with $3.9 billion of estimated revenue, Ethereum offers a 39x price to sales ratio. However, Ethereum revenue trends are vastly outpacing the fast growing and high-flying conventional cloud stocks,” Fundstrat analysts write. “This compares against 21x price to sales multiple and 38% growth for the Bessemer Venture Partners (BVP) Emerging Cloud Index.”
Of course, there is no guarantee that Ethereum sees a steady rise in activity considering the boom and bust cycle the cryptocurrency sector has become notorious for. Ethereum, after all, is a very different crypto than bitcoin, considering its founders and team are known. The technology is also undergoing an open source upgrade to increase network throughput and carries its own set of risks.
However, weighing risk and reward, coupled with the fact that CME Group is preparing to launch ether futures contracts in February, Megan Kaspar, co-founder of the digital asset investment company Magnetic, echoed Fundstrat’s bullish call in an interview with Yahoo Finance last week.
“There is a lot of value that is going to come out of this chain,” Kaspar said. “It’s definitely being overlooked and it’s misunderstood by a lot of investors that are just getting their feet wet to understand the ecosystem as a whole.”
She predicted a move beyond the $1,448 record ether hit in early 2018 could trigger a rally that could test the mid-$3,000 level. Over the last year, ether has rallied more than 700% while bitcoin has gained more than 300%.
Zack Guzman is the co-host of the 11AM - 1PM hours on Yahoo Finance Live as well as a senior writer and on-air reporter covering entrepreneurship, cannabis, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.