The price of Ether (ETH) rose more than 200% in 2021, resulting in a massive market cap of $ 337 billion. That impressive number added value to the Ethereum network ahead of the total market capitalization of big companies like Procter & Gamble ($ 326 billion) and PayPal ($ 308 billion).
Market capitalization is achieved by multiplying the last trade price by the total number of coins outstanding, regardless of whether or not they were moved. Hence, it rarely reflects the average price at which most investors traded.
For traditional finance investors, “value” is assessed by comparing multipliers and ratings. These are often calculated in terms of revenue, sales, and market share. Trying to apply the same value metrics to cryptocurrencies with multiple use cases creates uncertainty and discomfort.
Ether is a multifaceted good that is difficult to evaluate
There is no bulletproof metric by which to judge how the value of ether compares to its potential. The cryptocurrency can simultaneously act as a digital store of value and at the same time act as a token for access to the Ethereum network.
Hence, when comparing different asset classes one has to consider the coins deposited on exchanges or the percentage at which the owner effectively changes hands. The existence of regulated derivatives markets allows institutional investors to bet against the price of the asset and this is another factor that should be considered.
While the benefit of directly comparing market capitalization across asset classes is controversial, the metric works much the same for commodities, stocks, and mutual funds.
According to Infinite Market Cap, Ether recently exceeded the market cap of Nestle, Procter & Gamble, PayPal and Roche.
American multinational consumer goods company P&G was founded in 1837 and has a diversified portfolio of brands that include personal health, consumer care and hygiene. With 100,000 employees worldwide, the conglomerate posted net income of $ 13 billion in 2020.
On the flip side, Ethereum has an average of 2,320 monthly developers, according to Electric Capital’s “Developer Report”. Although it is not a secular company, its decentralized applications (dApps) process over 100,000 active addresses every day. Even more impressive are the $ 12 billion daily transfers and transactions on the Ethereum network. These numbers alone are excellent even for an S&P 500 company.
Stocks have their own risks that cannot be ignored
Comparing a 183-year-old company that is heavily reliant on manufacturing and sales to a technology-based protocol is unlikely to reveal many similarities. However, stock investors enjoy the fruits of dividends, and while some will argue that ether could be used for a return, the risks are greater.
Investors participating in the ETH 2.0 contract have the option of becoming a full validator or joining a pool. However, your coins can be lost due to malicious activity or non-validation of network transactions. Similar risks arise when lending ether through centralized services and decentralized protocols.
Public companies, on the other hand, can create new stocks to take advantage of excessive valuations or increase their cash position.
Tax changes, operational liabilities, and regulatory changes are other risks that shareholders sometimes face. For example, Roche was recently charged by the government with fraud against the CDC for $ 4.5 billion, according to an unsealed lawsuit in September 2019.
Decentralized protocols are virtually free from these threats, and this may justify their sky-high ratings.
Given the risks outlined above, investors might conclude that holding Ether is less risky than buying stocks. At the very least, it is possible to self-custody, which makes the asset less dependent on third parties and unauthorized transactions.
The views and opinions expressed here are solely those of author and do not necessarily reflect the views of Cointelegraph. Every investment and trading step is associated with risks. You should do your own research when making a decision.