🟪 Thursday sincere mailbag

Q: Is ETH cheap yet?

Author

Byron Gilliam
March 13, 2025

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“A cynic is a man who knows the price of everything, and the value of nothing.”

— Oscar Wilde

Thursday sincere mailbag

Q: Is ETH cheap yet?

This is the problem with crypto selloffs: Most tokens don’t get cheaper when they go down.

Ethereum fees are paid in ETH, for example, so however much ETH is down, the dollar value of its revenue is down the same amount — the earnings multiple doesn’t change. 

The only way for ETH to get cheaper, then, is for fees to go up.

Unfortunately, fees have been going down.

The amount of ETH that people have paid to use Ethereum (measured as REV above) has fallen every year from 2021.

(“REV” is the equivalent of earnings for layer-1 blockchains.)

That’s good news for users: Transactions are roughly flat over that time, so falling REV is a reflection of how much cheaper it’s gotten to use Ethereum.

But it’s bad news for investors: There does not appear to be any elasticity of demand for Ethereum blockspace — Ethereum has gotten cheaper to use, but people aren't using it more.

At $1,900, ETH now trades on about 163x REV (based on the current run rate of fees).

A year ago, when ETH was trading at $4,000 and fees were higher, it traded on about 130x REV.

(Note: You don't have to care about REV, but I don't know how else you’d measure ETH as an investment. If you hold ETH for its monetary premium, I’m not sure you're investing. I think you're either trading or collecting.)

So, the token is down about 50% over the past year, but it’s gotten about 20% more expensive.

And it was already very expensive!

However you measure it, ETH would get a much lower multiple if it were a stock and not a token.

Q: Should tokens be cheaper than stocks?

Yes — tokens are presumably riskier than stocks, so adjusted for growth, they should be cheaper than stocks, too.

In a recent talk with Blockworks, Noah Goldberg said his crypto investment fund, Theia Research, requires a 30% “hurdle rate” to invest in a crypto token.

In equities, by contrast, investors typically have a hurdle rate of 10-15% (i.e., they need annual returns of at least 10% to justify an investment).

By that logic, crypto tokens should trade at one third the valuation of a stock with the same growth prospects.

“It’s likely that a lot of businesses in crypto that are highly cyclical and have other low-quality earnings characteristics are going to trade in the 1-3x sales level,” Noah told Blockworks.

That’s a problem because most cash-flowing tokens are highly cyclical and have low-quality earnings characteristics — and most of them trade at much more than 3x sales.

Q: Will Saylor be buying another $21 billion of bitcoin?

That was the assumption after Strategy (née MicroStrategy) announced a $21 billion “at the market” offering of its recently created perpetual preferred shares, STRK.

But preference shares, being an awkward mash-up of equity and fixed income, are not particularly popular. So it seems unlikely that Strategy will be able to sell $21 billion of them into the market.

Maybe they’ve lined up some demand from institutional investors, but I’ll have to see it to believe it — I’d be surprised if there’s much interest from the fixed income investors Strategy says it’s targeting for a preferred share issued by a company that holds a single, non-productive asset.

Unlike bonds, the interest payments on preferred shares are optional, which I’m guessing will give fixed income investors pause since Strategy has no cash flow to pay it with.

MicroStrategy will presumably have to sell equity or debt to make those interest payments (unless it chooses to pay with MSTR, which I don’t think any fixed income investor would want).

Q: Is STRK a Ponzi?

No, because there’s nothing deceitful about it — it does what it says on the tin.

But selling equity to pay preferred interest does feel Ponzi-adjacent and the way it’s being marketed gives me Ponzi-like vibes.

On X this week, Strategy touted STRK’s negative correlation to both MSTR and BTC — “Extraordinarily, it provides investors access to both without correlation to either” — and also its performance: “$STRK has been the best performing and most liquid preferred stock in the last decade.”

What they don't mention is that STRK has been in existence for all of six weeks.

No one looks at the correlations of a six-week old asset — or touts its 10-year performance.

If the SEC were still in existence, the intern running Strategy’s X account might have gotten a note telling them to knock it off.

Q: Could the Trump administration wind up being a net negative for crypto?

It’s starting to feel that way.

If, for example, the Trump family takes a stake in Binance.US, as is reportedly in the works, it will be difficult to convince people that the administration’s embrace of crypto isn’t just one big grift.

Binance has denied the report.

(But if I were Coinbase, I might still ask to have my campaign contributions refunded.)

Q: Should the US have a sovereign wealth fund?

No.

At the crypto summit on Friday, Treasury Secretary Bessent said that President Trump is collecting assets for the American people.

But that’s not what the president of a country running huge budget deficits should be doing.

“A US SWF would not generate new wealth,” Romina Boccia of the Cato institute explains. “It would merely redirect capital from the private sector to the government.”

That's a weird thing for a pro-markets administration to be doing.

“A US sovereign wealth fund is not just a bad idea; it is an illusion,” Boccia concludes.

The benefits of a strategic bitcoin reserve (a single-asset SWF) will prove similarly illusionary, in my opinion.

Q: Did the government miss out on $17 billion by selling bitcoin too soon?

Yes, thankfully.

Crypto czar David Sacks said at the summit last week that selling bitcoin too soon has cost the American taxpayer $17 billion.

This is weird logic — akin to saying the government missed out on $1 trillion by not seizing Amazon a decade ago, or trillions more by not instituting a wealth tax.

The $17 billion that the government missed out on accrued instead to the individuals who chose to take the risk of buying bitcoin. 

That's a good thing — investment rewards should go to risk takers, not the US government, which risks nothing by holding it.

So the government should sell the rest of its bitcoin too, even if it's going up — especially if it's going up.

Also, what kind of investment pitch is Sacks making here?

If your investment advisor ever tells you to buy something because it’s gone up a lot, you should find a new investment advisor.

It’s not just Sacks — the entire pitch for the strategic bitcoin reserve appears to be that bitcoin has gone up a lot.

But that elevates the least interesting aspect of bitcoin (number go up) to a place where it will completely eclipse the most interesting aspect of bitcoin (resistance money).

If we only ever tell people to think about the price of bitcoin, they might not ever recognize its value.

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