Ethereum exhibits characteristics of a productive asset, generating profits that ultimately benefit its token holders. But is it truly valued like traditional productive assets, such as equities? Do valuation multiples influence the price of ETH?
Valuation multiples serve as a heuristic tool for assessing an asset’s worth. For instance, Google might trade at 30 times earnings, while Nvidia trades at 230 times earnings. If Google’s current earnings remain constant for the next 30 years, it would take three decades to recoup the investment. Should earnings grow, the payback period shortens. Compared to Nvidia, Google appears "cheaper" in terms of valuation. Entry multiples—like 30x versus 230x—are not the sole driver of returns, but they play a significant role. Highly valued assets, such as Nvidia, already price in lofty growth expectations. Failure to meet these expectations can lead to sharp price declines.
Similar valuation multiples can be applied in the crypto space. The market cap to total fees ratio serves as a crypto valuation multiple. Market cap reflects the market’s current perception of an asset’s value, while fees represent the total revenue generated by the protocol. For a blockchain, revenue is analogous to profit distributed across the network. Thus, blockchain revenue and earnings multiples are effectively the same.
Currently, Ethereum trades at a multiple of 100 times its rolling seven-day annualized fees. Since the summer of 2022, Ethereum’s fee multiple has fluctuated between 25x and 235x.
A clear inverse relationship appears between ETH price and its valuation multiple. The best time to buy ETH was near the end of 2022, when its price was around $1,200. At that point, however, ETH’s valuation multiple was higher—around 200 times fees. By the spring of 2023, ETH’s price approached $2,000, but its fee multiple had dropped to the 50–100x range.
This inverse relationship is counterintuitive. Typically, assets are more attractive to buy when their valuation multiples are low. Multiples tend to be low just before an asset reaches an inflection point. The market realizes the asset is undervalued. As the price rises, the valuation multiple also increases.
A common example of this relationship can be observed in the U.S. stock market during the 2010s bull run. The S&P 500 started the decade trading at a price-to-earnings (P/E) ratio of around 15x—below the historical average. As the economy recovered from the global financial crisis and interest rates remained low, both prices and multiples began a steady climb.
What Ethereum’s Multiple Reveals About Its Value
Does Ethereum’s multiple indicate whether ETH is "cheap" or "expensive"? How do these notions translate into ETH’s price performance? Can this metric serve as a reliable signal for buying opportunities, as it sometimes does in equity markets? Historical analysis helps answer these questions.
Over a five-year period, ETH’s price surged from $10 to over $4,000. This 400-fold increase makes it challenging to observe relationships in a single chart. Instead, distinct periods are highlighted to illustrate trends.
The 2017 bull market underscores the inverse relationship between multiples and price. At the beginning of 2017, ETH’s fee multiple reached a staggering 7,700x. Yet, from a price perspective, that was an excellent time to buy ETH, then trading around $10. Subsequently, ETH’s price increased tenfold, while the multiple contracted to around 100x.
The 2021 bull market demonstrated the same pattern. In early 2020, ETH was priced around $200, with a fee multiple of 650x. ETH’s price later grew by 24 times, while its multiple compressed to 22x.
Bear Markets and Multiple Contractions
Ethereum’s bear markets also exhibit this inverse relationship. In early 2018, ETH’s fee multiple dropped to a low of 200x, while its price was near its peak of around $1,000. Just months earlier, the fee multiple had exceeded 3,000x.
Similarly, the best time to sell would have been in late 2021, when ETH’s fee multiple sank to a low of 25x, while its price reached an all-time high of $4,000.
Across both bull and bear cycles, ETH’s price and multiple move in opposite directions. History suggests that the best time to buy ETH is when its multiple peaks, and the best time to sell is when the multiple bottoms out. This means purchasing ETH when its valuation multiple is highest and selling when it is lowest.
This behavior is highly counterintuitive and differs sharply from how productive assets like stocks are traded. What explains this unusual relationship?
Why Ethereum’s Valuation Multiple Behaves Differently
Markets—whether for stocks, commodities, or crypto—are forward-looking. Prices reflect future expectations, not past events. A company’s value, for example, is based on its future cash flows.
The market-cap-to-fees multiple reflects Ethereum’s fees at a specific point in time. The fee figure used in the calculation is the sum of the past seven days' fees, annualized. It does not account for Ethereum’s future fee potential. As a result, it is not a forward-looking indicator.
Historical data confirms that the Ethereum market is indeed forward-looking. During the 2017 bull run, Ethereum fees began rising before ETH’s price increased. Notice that the price did not decline as rapidly as fees did in early 2018.
A similar, though less pronounced, trend appeared in the 2021 bull market. By May 2021, prices had already risen ahead of corresponding fee increases. However, in the summer of 2020, fees nearly tripled without an immediate corresponding rise in ETH price. This may have been due to a lack of broader market attention during the COVID-19 lockdowns, despite increased activity in DeFi applications.
In bull markets, the evidence is clearest: ETH prices often rise in anticipation of growing Ethereum fees. During bear or sideways markets, the relationship is less consistent.
Implications for Investors and Traders
Ethereum’s fee multiple fluctuates widely and tends toward high valuation levels. Since 2016, the multiple has ranged between 10x and 8,800x. Since 2021, the range has narrowed to between 20x and 235x. Despite this, valuation multiples remain relatively elevated.
Ethereum possesses attributes of a productive asset, a commodity, and a store of value. Productive assets are valued based on earnings multiples, whereas commodities and store-of-value assets are not. The difficulty in rationalizing ETH’s valuation through a fee multiple may indicate that the market views ETH more as a store-of-value asset than a productive one.
Yet a complication remains: If ETH is not valued as a productive asset, why does its price anticipate fee growth? In theory, it shouldn’t. If ETH were purely a store of value, fee growth would have little impact on its valuation.
Still, fees do influence price—but to what extent? It’s difficult to isolate the impact of fees from other variables, including macroeconomic conditions, regulatory developments, and competitive pressures.
Fundamentals such as fees do matter for Ethereum. They reflect the health and prospects of the network. For Layer 1 blockchains, however, much of the value derives from monetary properties—the ability to store value, transfer value, and secure the network. Protocols and applications built on Layer 1 blockchains may behave more like productive assets, as explained in foundational tokenomics models.
Therefore, trading multiples alone cannot reliably predict ETH’s price. Whether Ethereum appears "cheap" or "expensive" based on its multiple does not reveal much. But Ethereum’s on-chain metrics, especially its fees, play a important role in driving price movements over time.
👉 Explore advanced on-chain analysis tools
Frequently Asked Questions
What is a valuation multiple in the context of Ethereum?
A valuation multiple, such as the market-cap-to-fees ratio, compares Ethereum’s market capitalization to its annualized fee revenue. It helps assess whether the network is overvalued or undervalued relative to its earnings potential.
Why does Ethereum’s price often move inversely to its fee multiple?
Ethereum’s price is forward-looking and anticipates future fee growth. When fees are low but expected to rise, the multiple may be high, and vice versa. This leads to an inverse relationship between the multiple and the price.
Can valuation multiples predict Ethereum’s price accurately?
Not in isolation. While multiples provide useful context, ETH’s price is influenced by numerous factors, including macroeconomic trends, adoption rates, and shifts in investor sentiment. Multiples are best used alongside other indicators.
How does Ethereum’s fee generation compare to traditional corporate profits?
Fees represent revenue generated by the network for validating transactions and executing smart contracts. Unlike corporate profits, which account for costs, fees are a gross measure of economic activity. Still, they reflect the utility and demand for the network.
Is Ethereum more like a productive asset or a store of value?
Ethereum exhibits traits of both. It generates fees like a productive asset but is also used as collateral and a long-term holding like a store of value. This dual nature complicates traditional valuation approaches.
What other metrics should be considered alongside valuation multiples?
Important metrics include network activity (daily active addresses, transaction volume), staking yields, total value locked in DeFi, and inflationary or deflationary trends due to EIP-1559 fee burning.