Through the first six months of 2023, Ethereum (CRYPTO: ETH) has been one of the top-performing cryptocurrencies, up more than 45% year to date. It now trades around $1,745, after briefly breaking through the $2,000 level earlier this year. However, Ethereum is still down by nearly 65% from its all-time high of $4,891.70.
Given Ethereum's performance this year, some investors are now recalibrating and putting more aggressive price targets on the token. Most recently, New York-based investment firm VanEck put out a head-spinning $50,000 price target for Ethereum by 2030. Given Ethereum's current price, that implies a more than 25x return. But just how realistic is that?
The bullish scenario for Ethereum
VanEck's valuation model is based on several key building blocks, so this is not the sort of pie-in-the-sky price target that is so commonly promoted by super-bullish crypto enthusiasts. The first building block is Ethereum's revenue model, which relies primarily on transaction fees. The second building block is Ethereum's coin supply, which is actually decreasing over time, helping to prop up the crypto's price. And the third building block is what VanEck calls the "broad market capture strategy" of Ethereum. Basically, this means that Ethereum is involved in just about everything blockchain-related these days.
Image source: Getty Images.
For each of these building blocks, it is then possible to construct a base, bear, and bull case scenario. For the bullish scenarios to take place, Ethereum needs to remain the market leader in every niche of the blockchain sector, such as non-fungible tokens (NFTs), while also broadening the number of real-world applications in which it is used in areas such as finance, banking, and payments. This is what a broad market-capture strategy would look like for the next seven years.
Transaction volume and growth forecasts
When it was founded back in 2015, Ethereum had a clear first-mover advantage. At that time, it had no legitimate Layer 1 blockchain rivals. But now, Ethereum must contend with the likes of Solana, Avalanche, and Cardano. And each of these Layer 1 blockchain rivals will continue to chip away at Ethereum's transaction volume. This makes it highly unlikely that Ethereum will hit the revenue targets in the bull case scenario. Right now, VanEck is projecting that transaction fees (i.e., revenue) will explode by more than 50x between now and 2030.
That doesn't seem likely, given that Ethereum continues to rely on a patchwork system of Layer 2 blockchains (which sit on top of its main blockchain) to process all of those transactions. VanEck views this Layer 2 ecosystem as a positive for Ethereum, and seems to suggest that the transaction fees generated on these blockchains should be factored into the overall revenue mix of Ethereum.
But I'm not so convinced that this Layer 2 blockchain activity should be seen as a sign of strength. From my perspective, they are just further proof that Ethereum is having a hard time going one-on-one with its rival Layer 1 blockchains, which are still much faster and much cheaper to use. Ethereum is most likely years away from reaching its peak transaction-processing capabilities.
Can Ethereum reach $50,000?
Given all of the above, VanEck appears to be too aggressive in its growth assumptions for Ethereum. For example, VanEck currently projects revenue for the category "metaverse, social, and gaming" to balloon by 50x in its bull case scenario. Counting on massive growth in this category seems flawed given that the metaverse investment thesis has completely imploded over the past 18 months.
And not taking into account all the potential for its Layer 1 rivals to chip away at its dominance seems short-sighted to me. Plus, it's important to keep in mind regulatory risk. If the Securities and Exchange Commission ever rules that Ethereum is a security, that would pose a huge risk to Ethereum's business model.
Simply put, a $50,000 price forecast just seems too aggressive. Remember: the all-time high for Ethereum is under $5,000, and Ethereum has already shown real weakness this year when it comes to pushing past the $2,000 mark. That being said, I'm still bullish on Ethereum both in the short term and the long term. It is a highly diversified crypto with exposure to every sector of the blockchain world. But I am readjusting my own expectations about Ethereum to keep them as realistic as possible.
