How High Can Ethereum Price Go? (Pt. 1)
With the invention of cryptocurrency and blockchain a whole new set of applications have been revealed to the world.
Take a long view of what is happening with the “tokenization” of assets and profit from it.
I estimate that if the stock market is tokenized, this could easily multiply the market cap of Ethereum by 760X it’s current value.
Ethereum the Public Utility
The Ethereum platform protocol provides the infrastructure for many types of decentralized applications which can be developed on top of it. Ethereum can be visualized as the electrical infrastructure and all of its applications are the light bulbs that plug in. One of these applications is the ERC20 token or more generally, “token”. The ERC20 is a “blank template” for creating an internet asset token which “plugs in” to the ethereum blockchain. These tokens have a price, can represent share ownership of a valuable asset, and can be traded cross borders in a 24/7 online market in the same way as bitcoin. ERC20 tokens are usually bought using ETH or BTC.
A limitless amount of ERC20 tokens can piggyback off the base ethereum platform protocol layer and they do not require permission to create(make your own). Unlike issuing a stock certificate, any person can raise capital by issuing a token without needing to interact with a bank, investment bank, or payment provider; while bypassing regulatory oversight of government. The ERC20 token will do to investing what twitter did to journalism.
One obvious use case for the ERC20 token is “tokenizing” the stock market; i.e. a market of tokens representing share ownership in a business. Similar to how a stock certificate represents ownership of a business or asset, tokens can be issued to represent share ownership of a business or asset. The worldwide stock market is estimated at $76 trillion in total market capitalization.
Tokenizing the Stock Market: How big?
Ethereum market cap could potentially appreciate 760x it’s current value just for the use case of the tokenization of the stock market via the ERC20 token.
The logic is simple: the worldwide stock market is 760X the current value of Ethereum(about $100 billion), shown below in scaled dots for reference. If all assets in the stock market are eventually tokenized, the total value of the tokens would be about 760X the current value of Ethereum.
760X might even prove conservative when you account for other markets that have the potential to be tokenized(bond market at $82 trillion, and derivatives market $1.2 quadrillion!). In addition most private assets will also likely be tokenized. Tokenization of the stock market represents just the tip of the iceberg. It should also be pointed out that tokenization by the ERC20 tokens are just one of the use cases for the Ethereum platform.
While it is naive to assume that an investment in ETH will appreciate 760X its current value by tokenizing the stock market, this exercise is done to gain an appreciation of the size of the opportunity. Savvy investors are trying to multiply their investment by the most amount of X’s. Its difficult to imagine an investment outside of early stage venture investing where one can possibly achieve a return of 760X.
Is the Tokenization of the Stock Market Likely to Happen?
Ethereum is competes with other platform protocols, but ethereum has by far the strongest network effects and is most likely to secure a monopoly for platform protocols. Currently, the ERC20 token is the obvious frontrunner to be the winning standard internet money token. Hundreds of these tokens can be viewed here. Note how nearly all tokens listed are backed by Ethereum(ERC20 token) which gives me further conviction that Ethereum is the front running platform.
Focusing on the technology in general, tokens easily represent a 10x improvement over issuing stock certificates as a means for raising capital for a project.
Time-to-liquidity — Because of lack of liquidity in the private market, early investors in VC backed startups usually can’t sell shares of a business to lock in their profit until they are listed publicly through an IPO; which is often 7–10 years after the investment is made.
Tokens on the other hand can be freely traded at any time on an international and liquid market and potentially without the use of a central exchange.
Value of asset — The same asset backed by a token rather than a stock certificate will have a higher value because of increased time-to-liquidity. When compared to stock shares, valuation of a token asset will be higher because tokens are highly liquid. Stock certificates require a higher discount rate because of lower liquidity resulting in a lower market value when compared to tokens.
Size of buyer base — Token can be purchased by any person in the world and can be sold to any other person in the world. When compared to a stock IPO which can only be purchased by “accredited” investors (net worth greater than $1 million or more than $200k annual income). It is estimated that this increases the size of the potential buyer base of tokens over stock certificates by 100X or more.
Decentralization — Tokens can be created at no cost by any person in the world without permission similar to how a web page can be created by any person. Token issuance is not controlled by any single entity, and is outside of the control of government regulatory oversight. Listing a stock publicly requires huge regulator hurdles and reliance on third party service providers (ex. investment banks, and payment providers).
*I am not a financial adviser and this is not financial advice
