When it comes to making forecasts about the future direction of the crypto market, there's arguably no one with a higher profile than Cathie Wood of Ark Invest. In 2022, she famously made a $1 million price forecast for Bitcoin (BTC 3.43%). And she hasn't shied away from making some truly mind-blowing forecasts for other, lesser-known cryptocurrencies as well.
Take Ethereum (ETH 1.74%), for example. At the same time that Cathie Wood was suggesting that Bitcoin would blow past the $1 million mark, she was also suggesting that Ethereum could become a $20 trillion asset by 2030. And, at the start of this year, she even suggested that Ethereum might outperform Bitcoin during the next crypto bull market rally. So should you be buying Ethereum now?
Cathie Wood's bullish call on Ethereum
It's one thing to make a pie-in-the-sky price forecast, and another thing entirely to back that forecast up with cold, hard numbers. That's something that Cathie Wood of Ark Invest does very well. Her firm's annual "Big Ideas" reports are must-reads for anyone who really wants to dig into the numbers and understand which cryptos are poised to soar much higher.
According to Wood, Ethereum is at the forefront of creating a new, decentralized financial system built around smart contracts, decentralized applications, and blockchain technology. Collectively, this is known as DeFi (for decentralized finance), and it is one area where Ethereum is absolutely dominant right now. According to one key metric known as total value locked (TVL), Ethereum accounts for nearly 60% of all DeFi activity in the world.
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So, the most bullish investment thesis comes down to this: Ethereum will completely disrupt the traditional financial system, ushering in a new golden age of DeFi. That will mean lower transaction costs for customers, new revenue opportunities for financial services providers, more financial innovation overall, and more opportunities for everyone -- not just the wealthy -- to participate in the growth of the global economy. As Ark Invest outlines in its latest "Big Ideas" report, this could be a $20 trillion market opportunity.
But do the numbers make sense?
Overall, the investment thesis for Ethereum seems to make sense. After all, Ethereum is still the leading smart contract blockchain network in the world, even with the arrival of plenty of new competitors. And DeFi is still one of the hottest areas of the blockchain world. My only concern, though, is that the numbers might not make a lot of sense.
For example, take the bold claim that Ethereum could become a $20 trillion asset by 2030. Given that there are 122 million Ethereum tokens in existence, that would imply a price of approximately $165,000 per token. Ethereum's current market price is about $3,000, so that works out to a more than 5,000% increase in value within the next decade. To put the $165,000 price forecast into context, the all-time high for Ethereum is just $4,892.
Also, consider what a $20 trillion valuation implies. First and foremost, it implies that Ethereum might surpass Bitcoin as the most valuable cryptocurrency in the world. Even if Bitcoin hits a price target of $1 million, it would only have an implied valuation of $20 trillion, the same as Ethereum.
And if both Ethereum and Bitcoin are sporting nifty $20 trillion market valuations, then the overall value of the crypto market -- currently worth $2.4 trillion -- would be worth at least $40 trillion within a decade. That's comparable to the total value of the S&P 500 today!
Can Ethereum hit a $1 trillion market cap?
Thus, I'm not nearly as bullish as Cathie Wood when it comes to Ethereum. Whereas she sees Ethereum increasing in value by a multiple of 50-fold during the next decade, I think the valuation multiple is significantly lower. For the sake of argument, let's assume the valuation multiple is a much more conservative threefold. That would still be enough to give Ethereum a $1 trillion market cap.
If you are thinking about buying Ethereum, I think this $1 trillion figure is the one that you should have in mind. Yes, if everything goes according to plan, and Ethereum manages to use its decentralized blockchain network to dominate the world's financial system, it might eventually soar much higher. It might eventually become a $20 trillion asset, as Wood originally predicted.
But I'm more than happy to live in a world where Ethereum is "only" worth $1 trillion. That would put it in the same valuation territory as the biggest tech stocks today. If you view Ethereum as an aggressive play on the ability of blockchain technology to disrupt the traditional financial system, then now might be the time to buy.
