TRANSCRIPT
Ryan Sean Adams:
[0:03] Bankless Nation, today we're going to check in on Ether, the asset. Where is ETH in the cycle? My favorite cycle investor, Michael Nadeau from the DeFi Reports on the podcast today. We do these episodes on the Bankless feed every month. And this one, I asked Mike to prepare a little information for the ETH holders among us. Mike and I have talked a lot about fair market value metrics for Bitcoin, the weekly moving averages, MVRV, all of the metrics. We've looked at many charts about Bitcoin. But ETH has its own cycle that is related to the broader crypto cycle, yet also independent of Bitcoin. So what do Mike's numbers say about ETH price in the months to come? I want to know if he thinks it's bottomed. If not, when is it going to bottom?
Ryan Sean Adams:
[0:52] ETH is one of three assets that Mike has held from the last cycle. So I know he owns some. Is he planning to buy more? If so, when? Now, I should qualify, unlike many guests on Bankless, Mike is not an ETH permable. He is bullish ETH, has been bullish ETH various times, but he's looking at this from a fairly neutral perspective. That is, what do the on-chain fundamentals actually say for this asset mike it's great to have you i know bitcoin is your favorite asset historically eth has been a second maybe not a close second but definitely a second is eth still your second favorite asset in crypto or does this cycle uh does it have to prove itself once again this cycle hey
Michael Nadeau:
[1:37] Ryan yeah great great to be here and that's a great uh question i think to lead in here um, I would say that the way I think of this is I think of Bitcoin as sort of a thing that we want to anchor our portfolio in. We've had periods where we were more bullish on ETH, less bullish on ETH. We still own some ETH currently in our portfolio. And, you know, one of the things that I like about the cyclicality of the crypto markets and just kind of like the sort of four year nature of these markets is that we get a chance to kind of like underwrite our thesis for Bitcoin, for ETH, for other assets. That we may want to invest in. And so I think this episode today is kind of an opportunity to kind of go back and sort of analyze like just high level, like what has happened with ETH over these last few years? You know, where are we going? And kind of get into some of the kind of like where are we at in the cycle? Are we bottoming right now? So yeah, excited to get into it. But I would say ETH, to answer the question, ETH has to prove itself to me. And like we can kind of get into what I'm looking for in this episode.
Ryan Sean Adams:
[2:40] All right. So ETH has an opportunity to prove itself to Mike this cycle in order for him to re-underwrite whether it should be included in the DeFi report portfolio.
Ryan Sean Adams:
[2:50] Before we get into this episode, I want to thank our friends and sponsors over at... All right, Mike, as we enter this episode, ETH price is just hovering above 2K. So it's hanging in there in this bear market. Actually want to go back and talk about the history of ETH across the three cycles that it's been around. So it hasn't been around as long as Bitcoin, but it's been around for a while. We've got 10 years or so clocking in. So there's been three cycles that ETH has, you know, boomed and then busted so far. The first was 2017. And the bottom of that cycle, you know, sometime in late 2016, ETH was $8. So just imagine that, not 2K, but $8. In 2017 at the peak, this lasted into January 2018, ETH went from $8 to $1,400.
Ryan Sean Adams:
[3:47] So this was incredible growth. This was 175X in the first cycle. So remember that, cycle one, 175X from trough to peak. Cycle two, This was 2021. We saw a 61x gain. So that's 6,000%. The trough there, we hit this in December 2018, $80. By November 2021, that turned out to be the top, we were at 4,878. So 61x in cycle two. 175x cycle one, 61x cycle two. Let's talk about the most recent cycle that ended in 2025.
Ryan Sean Adams:
[4:28] So there we troughed down to in June 2022, $881. And then our peak for this cycle was $4,953. So barely an all-time high eking in from the previous cycle. So the gain this cycle wasn't 175x, wasn't 61x. It was 5.6x. All right. A much smaller number. And so I think a lot of investors in crypto and for ETH right now are asking this question. Was this just a skipped cycle for ETH? Or is this now the new normal?
Ryan Sean Adams:
[5:07] Like that level of performance is kind of anemic compared to previous cycles. Is that just where we are now? Or do you think for whatever reason, this cycle just was not favorable to ETH and it'll come back stronger next time around?
Michael Nadeau:
[5:21] Yeah, I think this is the big question. And that's a very interesting kind of just framing of just kind of those, you know, diminishing returns of the last three cycles. Maybe if you just zoom out to like the max on that chart, right, we kind of look at this a little bit from a broader perspective. And what you can see here is a rising sort of, you know, base, which is a good sign. And I think a healthy chart, you can see these massive moves that we made in the first two cycles. And then in this last cycle, we've mostly just actually sort of traded within the range that was established back in 2021, 2022, which is interesting. This is unique for ETH. And if you look at a lot of crypto charts out there.
Michael Nadeau:
[6:10] This one's unique, right? It used to look like most of the other ones where you had the first like sort of Bitcoin, you know, big move back in 2017. And then you had 21.
Michael Nadeau:
[6:20] And but most of the assets out there, like you see like either they just never come back or they have another big, you know, third peak. With ETH, we didn't get either of those. We sort of stayed in the middle zone. So I think this can be, you know, bullish from the perspective that it's essentially just been kind of like, you know, sort of turning over the holder base for about five, you know, years or so now. And you can kind of look at this, you can go back and say, you know, it may be a bit barely sort of got to a new all time high this year. And it's trading at, you know, a level right now that it was similarly trading at, you know, four or five years ago. And you could ask yourself, is that, you know, bullish or bearish. And I think, you know, the way I think about it is I kind of go back to 2021, 2022, and think about, you know, just where Ethereum was on its roadmap and, you know, where it was in terms of fundamentals and users and all the network effects, all of the tooling, all the developers, all of the stable coins, and just kind of like everything that's kind of playing out on Ethereum. And we've seen all of those metrics improve, but we haven't seen it reflected in the price action. And I think the thing that this really comes back to and why ETH may be underperformed a little bit in this past cycle is just the nature of the L2 roadmap. And this was something that.
Michael Nadeau:
[7:49] We had something called, you may recall, Ryan, the Ethereum Investment Framework that we used to put out on a quarterly basis. And we were sort of essentially trying to lay out the roadmap for ETH and then how that would impact the sort of economics of the chain over time. And we accurately forecasted that the L2 roadmap would create this sort of diminishing value capture at the L1 level. But what we did not sort of forecast correctly was that the market perception of that and just the fact that basically what I think happened was Ethereum sort of disrupted itself, right, so that it could grow and so that we could scale via these L2s. And in doing so, they sort of like made the product better for the L2 customer, but sort of, you know, hurt themselves in the near term. And the big question is like, is this whole vision of the L2 roadmap, we can kind of get into how that's sort of evolving a little bit.
Michael Nadeau:
[8:57] Is this, you know, ultimately going to play out? Is Robinhood and Coinbase and traditional finance, are they going to come in, build L2s that actually like have real apps and tons of, you know, users on these things that ultimately there's actually a little bit more of like a value share. It's more of a win-win with some value accrual going down to the L1, which then impacts, you know, staking yields, some of those sort of ways that people think about valuing the network and just like the overall, you know, economic health of the network. You know, that didn't play out. I think that played a major role in sort of the, I would say, period of somewhat disillusionment that Ethereum went through during this past bull market.
Ryan Sean Adams:
[9:38] So then is your explanation basically that the roadmap decisions that Ethereum made essentially caused ETH price to skip a cycle? Now, whether the next cycle will be back to being more bullish again or not, whether it will continue to underperform and be anemic relative to previous cycles. Maybe you have to underwrite that on your own. But this cycle, the 2025 cycle, was it a case of just L2s not scaling in the way that Ethereum thought, the fees not accruing back to Ether the asset, the market looking at the L2 roadmap and saying, okay, this might be okay for individual L2 chains, but it's not necessarily good for either the asset. I mean, because that strategy has more recently pivoted and it started pivoting in 2025 and has accelerated into 2026. And it does seem like the direction of the Ethereum roadmap is much more about renewed focus on scaling the L1 and looking at the L2 roadmap and saying, okay.
Ryan Sean Adams:
[10:55] That was okay it was a little bit of a side quest mistakes were made lessons are learned were learned what ethereum really needs to focus on is is defy on the l1 and scaling up the l1 as l2 scale in parallel i mean i guess you could make the case that those lessons have been learned that the l2 roadmap was the reason that eath did not perform this cycle but now they haven't eath has an opportunity to overperform if it actually gets back on track and implements the L1 scaling roadmap. Is that the story here? If you kind of squint, can you see that?
Michael Nadeau:
[11:34] I can see that. Yes, I absolutely can. I was bullish on this L2 roadmap when this was really starting to come out. So if you go back to 2022, 2023 period, this is when optimism was coming out, rolling out. That was an exciting project at the time. I know Bankless had a lot of coverage on that at the time. Arbitrum came out thereafter, both of these lost tokens that actually performed decently well actually in a bear market. So there was excitement around the L2s. And I think the.
Michael Nadeau:
[12:11] You know, most of the apps would actually, you know, deploy on these L2s, which we saw most of the most popular DeFi apps, you know, deploy on the L2s. But we haven't really seen like any new app, like we've just kind of seen like Uniswap deploy on L2 and other like popular DeFi stuff just deploy on L2s. We haven't seen like a breakout app that comes via this new, you know, product, essentially, that Ethereum has built. And I think that's been an issue. And then the other issue is, you know, for this to really work from a user experience,
Michael Nadeau:
[12:48] these L2s need to be fused together and you need, you know, this bridging experience. I think there's a UX issue that's still, we've been promised that this would all fuse together and it would be seamless. That hasn't really happened yet. And I think these are the things that, you know, have, while this is playing out, then you have Solana sort of making a comeback that sort of captures the sort of more speculative nature of the, you know, crypto markets that Ethereum did have, I would say, in the 2021 cycle. Some of that had gone to Solana just because of the fees on Ethereum. But I think it's just really a combination of all these things. And so I think when you kind of like zoom out, you could look at that chart and say, well, wait a minute, This is like a really rough period for Ethereum. We've gone through, learned all these lessons. And, you know, this is a big, this is a big, you know, global asset.
Michael Nadeau:
[13:38] And it's, you know, that chart looks pretty good to me, to be honest, given all of this. And so it has the, because that chart still held up like that, it looks like we're establishing another lower high. Like to me, it does have the potential to potentially outperform Bitcoin, you know, next cycle. it underperformed Bitcoin, right? This cycle. And if you're a crypto investor, like that's your benchmark. And so every dollar that you're putting into anything other than Bitcoin, like we spend a lot of time, you know, thinking about that and which assets, you know, have the highest probability of outperforming. You know, we're still sort of kind of like coming to our conclusions about whether ETH has that potential here. But one of the big learnings from last cycle was that it's getting harder and harder to outperform Bitcoin. Especially for things that are not newer assets that are coming out and launching during these bull market cycles. So yeah, a bit of a ramble, but I think this is an interesting story. We're gonna get into some of the data. We'll get into some of the fair value metrics, but I think it's an interesting setup. You do have... Like I said, you have Coinbase, you have Robin, and you have major builders here. And it comes down to, are we going to see traditional finance? Are we going to see just this merger of TradFi and crypto here, maybe in this bear market, as we get regulatory clarity?
Ryan Sean Adams:
[15:04] So let's talk about another point of confusion, I think, for the market investors, at least I'm somewhat confused going into this, which is ironic given I think that's been almost a genesis question for bankless is how do we value these crypto assets like Bitcoin and Ether and on down?
Ryan Sean Adams:
[15:23] There are many different ways you can use to value Ether the asset. This is a website I have pulled up called ethval.com. It's pretty good. It's a composite of all of the different ways that have been popular and have some data behind them. But if you were to group these different valuation mechanisms for Ether, the asset, and this is independent of how successful Ethereum is as a network or the roadmap. What we're talking about here concretely is, all right, based on the success of the Ethereum network, how should investors think about Ether, the asset, in terms of what its fair market value price is, what the fundamentals are? And there's roughly, as far as I can tell, like three different categories of metrics. One is you just think of Ether as a monetary asset, like Bitcoin or like gold. It's a sovereign, non-sovereign, doesn't have an issuer's story value, has a scarcity story, a little bit different than Bitcoin in terms of its scarcity story, but still a scarcity story. And kind of number goes up because people believe it's a store of value asset independent of fiat-based systems. And so it's an alternative to that. That's one set of metrics that you can use to value this thing. Another set on the other end of the spectrum is
Ryan Sean Adams:
[16:43] The Ethereum network does generate some fees. And you can almost think of this as like tax revenue of the network. And it is able to collect some of these fees as, say, taxes and pass them on to those that are staking ETHI asset. And so there's cash flows actually attached to that. And so you get price to sales ratios and you get fee yield type ratios on that. Or you can look at kind of how much cash flows back to stakers and value it
Ryan Sean Adams:
[17:12] based on almost like a tech stock, an equity, some sort of discounted cash flow table. There's a third class too, which is you just think of this as a network, an economy and a network.
Ryan Sean Adams:
[17:25] And you think about the value on top of that network, all of the assets and stable coins and tokens. And you create some sort of total value locked multiple. and you look at historically how the prices reacted to a certain amount of value on the platform, then you just say, well, if that value goes up, then ETH price should increase. There's all of these Metcalfe law type network mechanisms where you're essentially saying that ETH, the asset, should be some sort of portion of the Ethereum economy and all of the assets on top of Ethereum. Those are like three different categories of how you value ETH. And what's Fascinating here, Mike, is when you look at the variance of these categories, if you took something like price to sales ratio based on the last 365 days of L1 fee revenue and blob fee revenue, either the asset would be worth about $2 right now. Okay?
Ryan Sean Adams:
[18:24] On the other end of the spectrum, if you look at kind of ecosystem settlement, use some of these network metrics and use some of the store value type metrics. This is one MV equals PQ. This was a valuation metric kind of popular in the 2017 era. ETH would be worth on that side $24,000. All right. Look at this disparity in two different metrics. You have $2 versus $24,000. Now, we have an ETH price point right now. The market has deemed that ETH is worth $2,000 right now. So what that tells me is the market is just trying to figure out how the hell to actually value this asset. Like, is it a tech stock? Is it some sort of network valuation, you know, economy that you're plugging for ETH price? Is it a store of value? Maybe the price just reflects that the market is uncertain in terms of which metrics actually apply to this thing. How do you see Ether the asset and which metrics in your mind should apply to its valuation?
Michael Nadeau:
[19:29] Yeah, this is great, Ryan. You know, what's interesting here as well is like when you look at that price to sale ratio, you know, if you go back to 2021 when Ethereum was printing cash, right? Right. This was when the L1, there were no L2s. Every user was on the L1 and you had massive congestion. We all knew that like that wasn't really sustainable. But the actual story at that time was cash flow. You could do a DCF and the numbers actually like sort of checked out. So it was a totally different story. So this has evolved quite a bit over the years. And it's due to, you know, the technical upgrades and just the way that Ethereum has kind of laid out its scaling roadmap. app. You know, my view on this, and we've tried to cover this topic a few different times. We wrote a piece last year called, you know, how to value an L1. And people can check that out. We focus more on like, We think the way to think about L1s is like as nation states and a token is the currency.
Michael Nadeau:
[20:28] And basically the nation state provides the infrastructure, like sort of like how a country provides like a set of rules and property rights and things like this. And like the blockchain handles that and then it charges a tax to all of the users and the users have to use that currency to access services. So I think it functions very similar to like that. I like that model. Now you know what is the most important sort of like valuation metric you know i think that it it comes back to um a few different things so i look at token economics as one thing that i think is very important ethereum has very strong token economics even with its sort of rev and it's like cash flow being down it's still you know less inflationary actually right now than bitcoin is so it has strong token economics the other thing you can look at is the sort of like tvl, gdp like what's the value of the economy on top of this thing when you think about east valuation right now around uh in terms of market value let me just pull it up real quick about 250 billion eth has about 107 180 billion of stable coins on it right that if you factor in the um.
Michael Nadeau:
[21:40] The rest of the TVL, you know, it's certainly much higher than the market cap. So that's another way. And typically we've seen fair value when the market cap converges to sort of like the combination of stable coins and other TVL assets. So to me, it's a combination of the sort of cash flow story. There is cash flow here that is different from Bitcoin, the token economic story, and then the fundamental story. I try to roll all of that up and then focus on what I think is the most important thing in the context of sort of like this idea of a nation state and why do certain currencies have more strength than others in a nation state model? It's because of capital flows, sort of the rule of law and monetary policy, all of these things. And that's kind of like a holistic way to think about this. I mean, traditionally, ETH has sort of just been valued like relative to Bitcoin, I think, for the most part. And the market hasn't really landed on like what is the key sort of valuation criteria just yet.
Ryan Sean Adams:
[22:39] I do think you're onto something with this nation state metaphor, really. And if you kind of take that, throughout history, there have been different nation states that have been blessed with the exorbitant privilege of having other nation states actually wanting to use their currency as a store of value and also as a medium of exchange. I mean, the US, most notably right now, has that exorbitant privilege. And so, you know, one wonders which blockchains might be blessed with that and which ones aren't. Certainly, it seems like Bitcoin has been blessed with that in the past. Will it be the only one? Will there be more? These are kind of the outstanding questions. But still, the nation state metaphor, analog valuation framework does does fit the mold for that case too,
Ryan Sean Adams:
[23:29] even in the story value case.
Michael Nadeau:
[23:30] Yeah, I think so. I think so. And, I've had the view that as a crypto analyst and as somebody who's constantly looking at data and trying to figure out what's driving the prices of these things, what should drive the prices of these things, I've had the view that we're eventually going to sort of land on some new standards in terms of how this is all going to work. You know we are still pre-regulation i think you know the crypto markets have been around for a little while but we are still pre-regulation so i think once this you know once we get the the clarity act you know through hopefully that is the legislation that we want um once that gets through i think you know and this just becomes much more open to traditional finance and how they're going to start to integrate i think we will start to land on some some frameworks and i I expect them to come from crypto native analysts and not traditional finance analysts. And so I think they're going to adopt some of the thinking that we've already established. And, you know, we'll see. It's, you know, be patient. You know, I've been saying this for years now and it hasn't really played out. But, you know, if these networks continue to be adopted and continue to produce interesting data and interesting fundamentals, like we will absolutely find a way and the market will absolutely, I think, converge on a sort of standard way to think about them.
Ryan Sean Adams:
[24:49] Well, let's take a look at some of those fundamentals and those numbers that at least you look at. So one of them is Ethereum revenue right now. So what is that showing us?
Michael Nadeau:
[25:01] Yeah, I mean, this is the story. This is the L2 roadmap, right? It's just sort of visualizing the sort of impact on the economics of the L2 roadmap. And where the chart really kind of drops off as like early 2024, that was right after we introduced like blobs, right? And so it made it really cheap for L2s to anchor data onto Ethereum.
Michael Nadeau:
[25:24] Basically ethereum's revenue declined significantly because of that and also just because there's a decent you know subset of ethereum l1 users that now use the l2 and so you're not getting those kind of l1 base fees and this is really kind of i think you know visualizing it this is the l2 rent paid down to l1 and that chart shows like it's really just the upgrade of ethereum improving itself which to me is ethereum disrupting itself is really what happened here and so that's not like uh you know uncommon like this is something that like software you see this and the question is and we saw we saw for years amazon um essentially you know operate at losses because they wanted to keep their costs really low and they wanted to scale their network effects and that worked out very well for amazon and so what we're seeing right now with ethereum is they've sort of like uh disrupted themselves they've improved their product for their end customer, but it's not really a great trade-off in terms of the value accrual that Ethereum is capturing. I do think there are ways that they can potentially capture more of that value in the future. But I think this is a story that the charts kind of just visualize what has played out.
Ryan Sean Adams:
[26:37] What's interesting about this at some level is, yes, fees have collapsed, right? I guess the sunny side of that or the optimistic take on that is even in spite of fees collapsing, ETH is still valued over 2K. You know what I mean? So there's something else that the market sees in here in the price of ETH that is not being reflected in fees. And it just is the case that like... It could come to pass that fees never, ever recover to the 2022 highs. The reason for that is if Ethereum continues to scale block space, both L2 block space and also L1 block space, as it intends to as part of its roadmap, then you get less scarcity because you have more supply. And unless demand outstrips the new supply that you're creating, fees will stay low in perpetuity. But at some level, isn't that the success scenario? Isn't that what the Ethereum roadmap is supposed to do? It's supposed to scale cheap transactions. So you get in a case where if you're looking just at the fee revenue, it's not telling the full story for this asset. And I mean, that's similar for other chains too. Like Bitcoin barely generates any fees and look at its valuation.
Ryan Sean Adams:
[28:01] So that's why it's complicated to just like, I don't know, look at the fee story and make any judgments here.
Michael Nadeau:
[28:08] Yeah, I would agree with all that. And I think this is where, you know, we talked about Ethereum having 180 billion stable coins and the network is worth, you know, about, you know, 250 or 230 or so billion right now. So, you know, there are other ways to think about fundamentals separate from just the fees. You know, the way that sort of that decline in fees is impacting like the staking yields is we're just seeing, you know, that blue where we've got a chart here of the staking yield of ETH over time going back to late 2022. And we had a pretty healthy sort of combination of new issuance, which is, you know, network inflation that's compensating the validators in combination with some MEV, you know, that's adding to the staking yield, and then you had priority fees. That we're all combining to produce a nice yield that was over 5%, you know, percent or so back in 2022. And as these network upgrades have come through, we're just seeing less of the sort of like, uh, you know, fees that are adding to the ETH staking yield.
Ryan Sean Adams:
[29:15] It's just issuance now. It's like 90% issuance.
Michael Nadeau:
[29:18] It's really, yeah, when you see the far right of that chart, it's mostly just pink. So it's like almost all issuance, it's about 90, over 90% is just coming from the, you know, Ethereum essentially minting new ETH, paying out the validators with that. The key point on this, and I think this is a very important thing for Ethereum, is even with these low fees, and this is really important, but the inflation, they're still able, Even though, yes, that is inflation, it's still like less than 1%. So you're able to compensate the entire supply side of your network.
Michael Nadeau:
[29:50] Do they want their yields to be over 3%? Yes, I think so. But I don't see the validators leaving the network because of this.
Ryan Sean Adams:
[29:59] You're saying the numbers here, isn't it? And I recall you throwing some numbers out, but annualized issuance for Ethereum in terms of new ETH that is minted every year, Isn't that something like 0.6 or something percent? 0.6 percent?
Michael Nadeau:
[30:13] Right now, it's about 0.83 percent annualized, which is around the same inflation rate as Bitcoin. And the reason that that's really important is you still have a, you know, you're basically not diluted. There's a small amount of dilution coming to ETH holders that are not staking. But you're able to do that even when the network isn't producing a ton of, you know, just sort of pure organic economics, most other networks that have very low fee capture that are paying the supply side primarily with inflation have high inflation rates, right? This is a unique thing about Ethereum. And so ETH can be viewed as a store of value and have strong token economics, even when the fee capture is at these depressed levels. And I think that's really important.
Ryan Sean Adams:
[30:58] What do the DEX volumes teach you about Ethereum? Ethereum.
Michael Nadeau:
[31:02] So, you know, this is something that in terms of valuation, it doesn't really come in too much on Ethereum. So the way I think about this is velocity absolutely matters and just like the speed that assets are moving on chain. And that can drive a lot of the network economics. And that's really the most important KPI on Solana. I think what is interesting here is that DEX volumes are down about 56% or so. Solana was doing... Significantly higher DEX volumes than Ethereum during the bull market. Ethereum is actually doing more now. So almost, you know, twice as many, this is just the Ethereum L1. It's doing almost twice as much DEX volume now in the bear market. So it's kind of like the tide has come out a little bit. We're starting to see, you know, kind of what's left. And Ethereum has a strong foundation, I think, I think is the kind of the key takeaway. But this metric is more important on Solana in terms of how it generates, you know, velocity on chain, which leads to MEV, which leads to, you know, base fees and staking yields on Solana.
Ryan Sean Adams:
[32:12] I think we made the point before that Ethereum is a bit more of a slow DeFi chain and that comes with a higher quality base of assets for certain that tend to perform better in the bear market. But whereas Solana is kind of high velocity types of DeFi and use cases. So there's some separation in the design of these networks as well. This is a metric that has been pretty much up and to the right and looks like
Ryan Sean Adams:
[32:39] it continues to grow, which is Ethereum's stablecoin supply. And you just mentioned we hit over $180 billion, and that's all on Ethereum. Ethereum has kind of the bulk of stablecoin supply in crypto. Is this bullish? I mean, this has not yet been reflected in price. Maybe you could argue it is. when the Genius Bill went through. ETH got close to kind of all-time highs, I believe. But do you think this has an impact on the price?
Michael Nadeau:
[33:09] It's, you know, it's been the big narrative. I think when Tom Lee, you know, got involved with Ethereum last summer. So this is one of the big things that he was was sort of pointing to that Ethereum has roughly 60% of the total, you know, stable coin supply. Stable coins look like they're sort of the.
Ryan Sean Adams:
[33:25] The chat GPT using Tom Lee.
Michael Nadeau:
[33:27] The chat GPT, yeah.
Ryan Sean Adams:
[33:28] Tom Lee's language.
Michael Nadeau:
[33:29] That's the killer use case for crypto, which I think is all fair. And yeah, Ethereum is the home for this. USDT is the most popular stablecoin on Ethereum. It's about 53.6% of the supply. What I'm interested in seeing how this sort of evolves is after we get the Clarity Act, are we going to see more TradFi stablecoins start to come out? Where are those going to be deployed? My guess is they probably will be deployed on Ethereum. And this is really going to boost out of, I think of like the state, if you think of like sort of the, just the foundation almost like when you think about a traditional company do you think about the the book value of the company like what is just like the actual hard value of all the assets of the company and when you remove the premium like i sort of think of stablecoin supply as like the hard value and maybe a few other things involving tbl as sort of like the base of like what the economy is on top of ethereum and so yeah i think this is a strong sign that it's only down 2.7%, even though the price is down closer to 60% or so. So I think this is bullish. And it'll be interesting to see how it expands from here.
Ryan Sean Adams:
[34:44] It's also interesting to see during the bear market, right? So you said the fair market value of ETH, the total market cap of ETH is something like $250 billion as we're recording, this number is 180 billion. So what happens if the value of ETH drops below the value of all stable coins on top of it? Does that signify undervaluation or does that not matter at all? I guess the market's still trying to figure that out.
Ryan Sean Adams:
[35:14] Let's talk about the fair value metrics that you use, which are a little bit different than the valuation metrics that we talked about earlier. And this is, I think, your favorite way of assessing the fair market value of Bitcoin, the asset, which is to use things like realized value, MVRV, percent supply and profit. What are the whales doing? Are they buying? Are they selling? At what stage in the cycle are we? These are kind of the cycle metrics that you've become famous for on the DeFi report. So what are ETH's cycle metrics right now and what are they telling us about where ETH actually is in this bear cycle?
Michael Nadeau:
[36:00] Yeah. So pretty interesting here. We've got the last two bear markets. These are, like you said, these are like kind of the cycle metrics. This is more, you know, market value to realize values, Z scores, supply and profit, things like this. You know, I probably should have added in here a few of the other sort of metrics related to TVL, stable coins, things like that. Maybe, maybe we'll tweet that out after the show. But, you know, what I see here is we're very close to where we bottomed. A lot of these KPIs are very close to where we bottomed in the last bear market. So market value to realized value, that measures the realized value as a proxy for sort of the cost basis of the network. This is something we pay a little more attention to with Bitcoin, just because Bitcoin is more of a store of value network. It's less utility. And so these numbers are not as precise, I think, because of the way that Ethereum moves on chain, because the way that these metrics are calculated is it's just taking basically the price of the token. So if somebody sent you some ETH and they did that at $3,000 and you never made another transaction after that, then that wallet's cost basis would be at that $3,000 price pay. And it does this for every transfer in and out of these wallets.
Michael Nadeau:
[37:20] So right now it looks like, I say that, But these metrics have been actually very, very accurate and provided a lot of signal for crypto analysts. So we bottomed in terms of NVR at 0.7. So actually below one. Bitcoin is at about 1.26 right now on this metric. We're at 0.84 right now. So you're clearly in what I would say is like the, you know, what looks like a cycle low zone. You know, we don't know if it's going to go lower. And I'm mostly, you know, paying attention to that 2022 column here because ETH was a very, you know, immature asset back in 2018. When we look at the Z score, again, close. You know, we're not below where we went to in 2022, but we're pretty close. When we look at the supply and percentage of supply and profit, you know, this is pretty interesting. We're actually below only about 39.4%. This is the entire network that we're factoring in here. You know, only about 39% of ETH holders looks like they're in profit right now. And that got, you know, that's actually lower than we went to in 2022. ETH BTC ratio, this is just, you know, a way to, you know, relative to where Bitcoin's trading. What's interesting about this one is ETH established its cycle low for its ETH-BTC ratio in April of 2025. Oh, wow.
Ryan Sean Adams:
[38:43] So this isn't a 2022 KPI load. This one specifically happened in April 2025.
Michael Nadeau:
[38:51] Yeah, very kind of odd to see that happen.
Michael Nadeau:
[38:54] And we have got a chart here we can go to after we finish on this one. But that, you know, it looked like ETH was probably at its most oversold level ever, actually, in April of 2025, we can get there. But then we look at the, you know, 200 week moving averages is a metric that's worked quite well for Bitcoin. ETH has also traded below its 200 week moving average in the last cycle, and it's actually currently there. Right now, it's actually at a lower level than it was at the 2022 low.
Michael Nadeau:
[39:26] So why don't we flip over to that next chart to give a little bit of a view of that. Yeah, here it is. So this is just showing the, you know, the 200 week moving average and the distance that that pink line gets below the blue is giving you a pretty good indicator of historically, you know, kind of where we could be at here in terms of like the big cycle. And we could see that, you know, we actually went to the lowest point ever below that blue line in April of 2025. And then that's basically what kicked off the run that right after that was when I think Tom Lee came on and everything kind of changed for a brief moment there, but we never really, you know, pushed to like durable new all-time highs. So we're right now back at what I would say is pretty clearly fair value. And the way I think of these things is like, It's possible for something like ETH that it could actually just bottom before Bitcoin bottoms. That happened in June of 2022. That's kind of rare. Most crypto assets actually bottom after Bitcoin or around the same time. So it's possible that ETH has actually bottomed. That's actually possible. It's also possible that we're going to see more weakness for Bitcoin here at some point in 2026.
Michael Nadeau:
[40:48] Potential weakness in the traditional markets. And that could bleed into ETH as well. But I would say from a very high level, it's certainly in a fair value territory when we look at these types of metrics. And also, if we look at the GDP type metrics and the TVL and just the base of assets on the chain, from that perspective, I would say it's also in a fair value zone.
Ryan Sean Adams:
[41:15] So I know your base case is that Bitcoin will have further weakness this year and it could take some months to play out. But if we just go back to kind of the fair value KPIs for Ether, the asset. Could you translate this into like a price for Ether or like a time range if maybe this plays out as you're expecting? So it seems like we are in actually the fair market value zone for Ether, what you would call the fair market value. Not necessarily deep value yet. And we had this conversation on the TDR podcast last week, the difference for Bitcoin between fair value, which is kind of it's in that early stage right now versus deep value. And the returns can be much more drastic to the positive if you're buying in the deep value territory. So what's kind of from a price range perspective and a timeline perspective, your rough estimate of how long we'll be in fair value? And then what does deep value look like for Ether?
Michael Nadeau:
[42:19] Yeah, I think what was interesting in the last cycle is that ETH actually went all the way down, I believe, to about 900 or so early in that bear market, so May, June period. And that was the low. That was the low that established for the entire cycle. And then when we had the FTX capitulation, it actually never went back down to those lows. That's something I'm keeping in mind that that's possible that that could happen. So in terms of like just, you know, how this can go and the timelines and things like that, you know, I think bear markets have historically taken about a year to play out. And that's kind of my my base case for for this cycle. And, you know, I've kind of, you know, if you zoom out and just think about, you know, things that are happening on like the macro side of things. And, you know, it's hard to see like an impulse of liquidity coming from either fiscal monetary policy. We now have oil rates that are rising and potentially kind of a stagflationary setup here where it looks like inflation expectations are rising, growth expectations are slowing. This is not a really sort of bullish setup, I would say, for crypto.
Michael Nadeau:
[43:40] It could lead to a situation where the Fed has to actually do some emergency rate cuts. So that would, that would, to me, would be a good setup for ETH, for Bitcoin, for crypto largely. But that's kind of where I'm at. I'm, you know, we were risk off back in September, October period. We are now risk on, but I would say not like full on risk on. We've sort of tried to allocate in these fair value zones in line with what I think the probabilities are for potential deeper value opportunities.
Ryan Sean Adams:
[44:13] Yeah. And I know you've primarily in the risk on mode, you've just allocated to Bitcoin so far and are looking to move kind of down the stack a little bit later in the cycle as you expect this to play out. But roughly in my head, if I'm looking at these numbers. I'm kind of swagging it, right? We're at right now at 2K, we're in sort of the fair market value zone, maybe the top end of that for Ether. Deep value, I don't know, knock another 25% off or something like that, 1,500 and below. Is that starting to look more like deep value for Michael Nadeau and the TDR for Ether?
Michael Nadeau:
[44:46] I think so. I think we went down to like 1700 or so in April like if we get there that probably is a you know deep value zone you know, We'll see. I mean, we've, we've, we've come down quite a bit. I think we came down to 1850 or so, and now we're sort of bouncing. It feels like we're in the part of the cycle where we've come into fair value. We, we got there fairly quickly. We're about five months into this bear market. And it feels to me like we're kind of at the part of the cycle where we're just going to kind of like chop around, you know, we're seeing some turmoil with, you know, traditional markets with geopolitics and like, we'll see how this kind of gets resolved. But it feels like we're in the zone where we chop around, you know, try to find a bottom. And most of the work that we're doing right now is just try to assess that. And then we're, you know, essentially doing a lot of fundamental research to try to decide which assets that we want to pair up in our crypto portfolio. Which ones do we have the highest conviction that they will outperform Bitcoin in the next sort of expansion phase?
Ryan Sean Adams:
[45:51] Okay, so let's talk about that maybe as we start to bring this to a close, Mike. So, of course, an asset being in the fair market value zone is necessary, but not the only requirement for getting inside of the TDR portfolio and your portfolio, because what you're really looking for is assets that will outperform Bitcoin. And I guess the question is, if Ether is in the fair market value zone, I know you already have some, but this is carry forward from last cycle in the TDR portfolio. You know, what does Ether have to prove to you in order to get in the portfolio this cycle? Obviously, it has to be in the fair market value or deep value zone for you to be a buyer. But there's all sorts of other crypto assets that you could buy or other assets in general. What are you looking to see specifically for ETH to re-underwrite it as an asset that you want to include into the early bull side of the cycle that starts to play out in 2027?
Michael Nadeau:
[46:56] Yeah, I think, well, I think ETH looks healthy to me. Like it was, I was growing more concerned, I would say like last year and just seeing the reaction, you know, a lot changed. Like I think Ethereum addressed a lot of these concerns that were going on. And so I think it's in a healthy place. There's a little bit more of a renewed focus on the L1 and scaling the L1. So I think that's, it's in a good spot. For me as an investor, what I have to look at is, okay, what are the other options here? What are the other things that I can buy? And to me, it just comes down to like, do I have more confidence in those things from a fundamentals perspective, from a valuation perspective, from a token economic perspective and buybacks and things? I'm trying to sort of analyze each asset separately and then decide which ones do I have the highest conviction, you know, are going to outperform. And so, you know, there are lots of assets that you can put into a portfolio. I'm confident that ETH is going to do well and have an expansion in the next cycle. And I would hope that it'll definitely get past those 5k, you know, all-time high.
Michael Nadeau:
[48:10] But the question is, do you have more conviction in that and ETH potentially outperforming Bitcoin this cycle versus, you know, there's probably five to 10 other assets that we're looking at that we haven't made any decisions on, but we cover these in the watch list on a weekly basis. And that's kind of where we're at. People can subscribe if they want to find out, but we ultimately, you know, add to the portfolio.
Ryan Sean Adams:
[48:35] I can't wait to see where you end up with at this cycle. So let's wrap it here. And for Bankless listeners, Mike and I do this every month. We put this on the Bankless podcast, actually on a weekly basis. Every Wednesday, we publish a new podcast on the TDR feed. And so if you're not subscribed to that, go take a moment to go subscribe to that. You'd find it in Spotify. You can find it in YouTube. Just do a search. There's a link in the show notes and you'll get access to that. Actually, we're going to be recording an episode here shortly. So there might be something live for you on that feed right now. What's the episode that's coming out tomorrow, Mike?
Michael Nadeau:
[49:12] Yeah. So, you know, one of the nice things I think I kind of hinted at it a little bit at the beginning of this show is, you know, I view the volatility of the crypto asset class as like a feature, not just because you can sort of, you know, trade and get in and out of things. We're more of a long term investors. So we trade these cycles. And what that allows us to do is kind of re-underwrite these thesis every four years or so. So we're actually doing like a health check on the Bitcoin network this week. We're just going to go through all the things that we think are most important to just like the health of the Bitcoin network to help re-underwrite our sort of like, you know, five to 10 year outlook for Bitcoin. So that drops tomorrow and we'll talk about it on the DeFi Report podcast as well.
Ryan Sean Adams:
[49:55] I can't wait to have that conversation. I don't know if you're going to be covering like quantum or security budget and some of those longer term concerns, but we'll talk about it there. Also, I believe that the TDR Pro, you're offering one month free to Bankless listeners right now. I am a proud, happy TDR Pro member. Really inexpensive. The cost of a Netflix subscription. If you want to try that for a month, you can do that. But it gives you access to Mike's portfolio in the TDR. He is right now, I believe, 40% crypto, 60% cash. So starting to move into that risk on territory. You get research reports every week. You get data dashboards. you get the watch list. Mike, what else do subscribers get when they get the TDR Pro?
Michael Nadeau:
[50:38] Yeah, so we do these cycle awareness reports. We actually just released one of those last week that goes through a lot of some of the data that we went through for ETH. We went through that a lot of it for Bitcoin last week. So you get cycle awareness reports, market structure reports, on-chain data. And I think that really helps anchor people to just like where are we at in the cycle. And then we do the watch list reports every Friday. Those are specific asset level reports where we go through the fundamentals. And we've initiated coverage on those assets because we may include them in our TDR Pro active portfolio when we think it's time to be more risk-on. So it's kind of like following an investor's journal to some degree, I would say, TDR Pro.
Ryan Sean Adams:
[51:21] Yeah, one of my favorite things is when I get the fat pitch email alerts from Mike indicating that he's just bought back in because that's always a bullish sign for me. So you guys can access that in a link in the show notes. We'll leave you with this. Of course, none of this has been financial advice. You know, crypto is risky. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.