Why am I not optimistic about Ethereum right now?

Author: Alex Xu

I’m not optimistic—not about the long-term business development of Ethereum (referring to the future growth in user base and transaction volume, which I believe will still increase)—but about not wanting to buy at the current price because its valuation is too high relative to its fundamentals.

From several charts, we can create a profile of the current Ethereum:

1. Active user numbers are rising in a wave pattern to new highs (44% higher than the previous cycle peak), and transfer transaction counts are also at new highs (13% higher than the previous cycle peak). The growth rates of these two indicators are still not as high as the GMV growth of some leading e-commerce platforms.

2. Currently, the monthly transaction fees are only 0.6% of the previous cycle’s high point, and the average fee per transaction is only 0.5% of the previous cycle’s high point. In other words, the slow growth in users and transaction counts is achieved at the expense of sharply declining service prices. The cost of growth is severe product and service price reductions, which is not a good sign for any industry company.

3. If we consider Ethereum as a company providing block space services, based on December data, its PF (Market Fee Rate) exceeds 2000 times, PS (Market Sales Rate) exceeds 10,000 times, and its net profit is negative. Therefore, there is no PE ratio indicator. In contrast, typical cloud service companies have PE ratios around 20-30, and PS ratios are single digits.

4. If Ethereum is viewed not as a company but as a commodity (similar to digital crude oil), its challenge lies in the fact that other public chains and rollups can also provide similar block services (like substitutable crude oil). Some might argue that Ethereum’s decentralization and censorship resistance make it more valuable as a commodity resource, so it should be more expensive. But is it really worth that much? The previous call that ETH could replace BTC as a store of value has almost disappeared, as a consensus has been reached that BTC equals digital gold. ETH now resembles a tech company + a specialized cloud service provider, with a high substitutability in its commodity positioning.

5. Almost all crypto-native applications with PMF (Product-Market Fit) have been phased out; this cycle has seen almost no applications with strong value. Insufficient demand combined with increased supply (growth in rollups and public chains) has led to a severe oversupply of block space, and the public chain sector itself is experiencing sluggish growth or even contraction.

6. As for Tom Lee and some domestic VCs’ grand vision of “Ethereum as on-chain Wall Street, with everything going on-chain in the future,” I believe there is currently a lack of data and sufficient factual evidence to support this story. There is no concrete logical deduction; it seems more like a hype call. Our investment decisions should be based on rationality, not faith. I am not interested in the pie they are offering right now. If future data and facts gradually support this story, then it’s not too late to reconsider.