In a recent discussion with Proactive’s Stephen Gunnion (SG), Tim Bevan (TB), co-founder of ETC Group, delved into the intricacies of Ethereum, its rapid adoption, and the burgeoning opportunities it presents in the realm of digital finance and beyond.
Bevan shed light on Ethereum's unique position in the digital ecosystem, likening its growth and potential to tech giants before their zenith.
SG: What is ETC Group’s investment case for Ethereum?
TB: Well, it's a very different asset. In many respects, it's an easier-to-understand asset. It's really a tech company, and I say tech company because it has become, I suppose, an operating system.
It's a network effect secure, distributed ledger on which people can build commerce; it's going to be the underlying architecture of Web3. And in that respect, it already is dominant. I think it has an 80% market share of the total value, or smart contract activity.
So this is already a very dominant network. If you look at active Ethereum wallets, wallets that have nonzero balances, we've already got 115 million after eight years. And to put that into context, in 1998, there were 147 million internet users, and that's 15 years after the internet launched. So, if we look at adoption curves, whether it be the internet or mobile phones, the adoption of Ethereum is extremely rapid; the network effect is already there.
Most global corporations have projects that are building into Ethereum infrastructure, supporting this new global commerce model that is underpinning Web3. And it's almost like Google using TCP/IP as the operating system of Web 2.0 or the internet that we recognise.
But that foundation layer is now increasingly looking like it will be Ethereum. So it's an extraordinarily exciting prospect.
To my mind, the analogy I like is, it's like finding Microsoft pre-Windows. It is a much cheaper asset than the large tech stocks that have been dominating the US stock market for the past five years or more. So it's a fascinating investment opportunity. And something that's actually relatively easy to understand in terms of valuation models, you can do DCF, you can apply much more standard equity risk, or company risk evaluation models in terms of understanding and valuing.
SG: ETC Group has recently introduced a new Ethereum staking product. Could you share insights into this innovative offering?
TB: Absolutely. Ethereum presents an intriguing case because it essentially generates cash flows. Simply put, to use the network and move assets across it, you pay fees in the form of ether tokens, and validators receive tokens for validating these transactions. This process creates a staking yield, currently around 4%, integral to Ethereum's economic model.
Our new product is designed to capitalise on this staking yield, going beyond merely tracking the price of Ethereum tokens. By actively staking Ethereum to validate transactions, we offer a product that not only captures the price movement but also a significant portion of the staking yield, benchmarked against a transparent staking return index.
SG: Beyond Bitcoin, are there other cryptocurrencies or developments within the space that have captured your attention?
TB: The cryptocurrency market has been heavily influenced by Bitcoin and Ethereum, especially with the unfolding story of the US Bitcoin ETF. However, the potential introduction of an Ethereum ETF could significantly impact Ethereum's price. Despite this, the cryptocurrency universe is vast, with many alternative protocols that often trail the market initially.
Historically, we've seen these 'altcoins' gain momentum as interest in the sector resurges, leading to investments in understanding the technology and discovering new opportunities.
The open-source nature of crypto encourages continuous innovation, offering solutions to existing and new challenges. The altcoin universe, enriched with diverse protocols aimed at various problems and increasingly linked to AI and other technological trends, presents a captivating landscape for exploration and investment, despite the dominance of Bitcoin and Ethereum.