Mechanism Capital Co-Founder: ‘$ETH Is Expensive Here on a Fundamentals Basis’

On Sunday (July 17), Andrew Kang, Co-Founder and Partner at crypto-focused investment firm Mechanism Capital, talked about his fundamental analysis of Ethereum ($ETH).

This is Kang’s bio:

Andrew Kang is a cryptocurrency entrepreneur and investor. He is the Co-Founder of Mechanism Capital which invests in cryptocurrency through prop trading, mining, ventures, and secondary markets. Kang previously worked in portfolio management and venture capital at Digital Capital Management. In 2020, Kang was deeply involved in various DeFi related ventures, he is also very active in providing analysis on DeFi projects through Twitter.

Earlier today, Kang took to Twitter to make a few observations about Ethereum:

  • Ethereum gas prices getting back to pre-DeFi Summer levels
  • Ethereum price has declined ~75% since peak, but network earnings/activity have declined more At peak, Ethereum traded at 33x PE, it now trades at 123x PE If ETH traded at 33x PE today, it would trade at $360
  • I think its possible that $ETH bottoms with a high PE, but I’m not betting on it yet I believe $ETH is expensive here on a fundamentals basis, but there is a lot of latent capital held by VCs that are ok to buy ‘expensive’. This could result in $ETH bottoming at above a 33x PE
  • For the uninitiated, significance of PE matters little in bull markets, but is what bottom setters look at closely in bear markets Yes, pure PE does not encapsulate all value capture mechanisms of $ETH but is a good metric to judge relative fundamental value between periods
  • $ETH is a hybrid commodity-money-equity and its value can be considered the aggregate value of its 3 functions From a equity perspective you look at cash flows (PE, DCF) Money, MV=PQ Commodity, supply and demand

However, not everyone agrees with Kang’s assessment.

For example, macro-economist and crypto analyst/trader Alex Krüger offered this comment on Kang’s fundamental analysis:

Value is subjective. Narratives shift. When it comes to crypto (layer 1s) valuation metrics are only useful for driving narratives. P/E is a rather useless metric for long term analysis when earnings are so volatile and reflexive.

According to data by TradingView, on crypto exchange Coinbase, $ETH is currently (as of 22:13 UTC on July 17) trading around$1358.70, up 1% in the past 24-hour period.

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Featured Image by AgelessFinance from Pixabay

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