10 Assuming Ethereum captured 2/3 of this value and holding the ETH market cap/revenue ratio steady at its current 19x “sales” would yield an ETH enterprise value between $1.8 – 2.3T vs.

Those two scenarios would produce annual non-Bitcoin blockchain network fees of $145B - $180B. high-cost developed market banks with their 60%+ cost/income ratios 8, and the prospect for addressable market growth as additional revenue streams get tokenized, is it too wild a stretch to imagine 5% dollar share for non-Bitcoin blockchains in five years? Alternatively, the banking revenue pie could shrink by as much as 20% thanks to the deflationary impact of the blockchain 9, and digital asset platforms might take a larger 7.5% dollar share of a more efficient system. 7 Given the scope for decentralized financial networks to compete on price vs. Against that, ethereum mining revenues are on pace to surpass $18B this year, representing 60bps of the global banking pie. Summing global retail banking (ex-mortgages and payments) revenues of $1.4T, global payments revenues of $1.1T, global investment banking and trading revenues of $500B 4, and asset manager revenues of $130B 5 one arrives at a total banking top-line of $3T (3.4% of global GDP and 3% of global investable assets) 6. Putting aside the Ethereum 2.0 transition, which we will return to later, the scope for potential disruption in financial flows thanks to blockchain-based solutions is still enormous, in our view. Bitcoin and Ethereum Average Transaction Fee Bitcoin and Ethereum Market Capitalization to Miner Revenues Ratio Importantly, an upcoming change in the formula for how Ethereum network fees are calculated and distributed (Ethereum 2.0) may end up turbocharging Ethereum’s already ballooning cash flow, though considerable uncertainty remains on that point. Meanwhile, thanks to its innovative use of “smart” programmable contracts, we believe Ethereum has become a formidable low-cost competitor not only to legacy financial intermediaries such as SWIFT, ACH and global investment banks, but also, as Web 3.0 apps proliferate, to Big Tech.

3 And technical improvements to the bitcoin network have increased its daily USD capacity by 10x in the last year, making network participants more profitable. dollars on large centralized platforms like Coinbase or Blockfi at 5-8% rates either way, often eliminating the need for outright selling. 2 Retail investors can now borrow or lend bitcoin for U.S. The CME now hosts a $6B daily bitcoin futures market, allowing institutions to hedge cheaply. Put simply, the asset class generated no cash, making it very hard for market participants to set a valuation floor. The mainstream investment thesis for bitcoin, to the extent there was one, rested on a store-of-value argument that lost much of its appeal when the headline price turned lower and regulators grew wary. Consumer-facing Web 3.0 apps such as NBA Topshots and Zed Run didn’t even exist. Native crypto derivatives exchanges were underdeveloped with poor user interfaces and spotty liquidity. Spot ethereum prices were not yet available on Bloomberg. When bitcoin peaked in December 2017, the Chicago Mercantile Exchange (CME) had yet to list a futures contract. 1 Now many investors are asking: could the same thing happen again? While high volatility has been a hallmark of this emerging asset class in its formative years, there are several reasons to believe a digital assets bear market may be less severe, or even avoided altogether, this time around. At that time, bitcoin’s relative weakness foreshadowed a crypto winter in which the total crypto market cap fell 86% peak to trough. Bitcoin’s share of total cryptocurrency market cap has fallen to levels not seen since the beginning of 2018.

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