Ryan Sean Adams has drawn attention to how Ethereum high gas fees relative to the present Ether price could actually be a bull run sign.
In line with this week’s Grayscale research paper ‘Valuing Ethereum,’ the Bankless commentator claimed that Ethereum is “actually getting cheaper” from a price to sale ratio aspect.
A price to sales ratio (P/S) is typically calculated by taking a company’s market capitalization and dividing it by revenue from sales. During this case, taking Ethereum’s $184 billion market cap dividing it by the entire revenue derived from transaction fees provides an identical metric. The lower the P/S ratio, the more attractive the investment although there’s debate on how applicable it’s too decentralized digital assets.
In line with the Grayscale report, Ethereum’s P/S ratio at the beginning of 2021 was rock bottom it’s been for over three years at around 0.02.
While Ethereum isn’t a business and transaction fees aren’t technically sal revenue, institutional-grade investment vehicles like Grayscale often use traditional methods to assist value assets. The report explained:
“A lower ratio indicates that the network is generating high revenue relative to Ether’s historical market cap, and thus could also be undervalued.”
Given the big effort going into reducing ETH fees with Eth2, layer-two scaling, and therefore the Ethereum Improvement Proposal EIP-1559, this revenue is additionally faraway from guaranteed into the longer term.
Moreover, high transaction fees are indicative of high demand on the network, which is hoping news for miners and future holders, if not for those eager to use it on a day-to-day basis.
As per BitInfoCharts, the typical Ethereum transaction fee has skyrocketed to an all-time high of around $23 USD. This makes using the network totally unviable for smaller transactions that eliminate tons of DeFi activity for the typical trader or investor.
Grayscale and Ethereum advocates, on the opposite hand, see the positive aspects:
“We can observe from the info that the worth of Ether tends to maneuver with underlying activity on the network […] multiple metrics are reaching new highs, including active addresses, hash rate, and network fees – a positive sign for investors.”
Grayscale also suggested that the gas-lowering EIP-1559 could create a regeneration loop which is although an extremely bullish sign for ETH prices.