Big news for Cardano holders Grayscale just published a report saying that “Cardano is undervalued in comparison to both Bitcoin, and Ethereum.”
We’re going to break down Grayscale’s report step by step in this post looking at fundamental growth in users, transactions, and fees paid on the Cardano network. Grayscale is one of the biggest crypto fund managers in the world, currently holds around 45 billion dollars worth of crypto assets as of October this year.
Cardano though as a percentage makes up just 5% of their DeFi large-cap fund with the vast majority going through both Bitcoin and Ethereum.
But it looks like the fund manager may be looking to increase their weighting thanks to a consistently bullish report that they’ve just published on Cardano, and they have the data to prove it.
We have a 20 report on a variety of Cardano metrics that paint a very bullish picture of growth, and importantly really do prove, and show the real growth that has occurred on the blockchain since the launch of smart contracts in September this year, so we really are at day one for the growth of ADA, and no more ghost chain fud is possible.
Cardano ADA Payment Value Settled
Let’s come to the first piece of data, which is payment value settled in the last 12 months, or something that Grayscale confusingly called LTM shouldn’t it be PVS (Payment Value Settled), but anyway we know what that is payment value settled so this is the total dollar amount that’s been transacted on the network in the past 12 months.
For example, if I paid you $100 bucks ADA then later on you paid me 200 bucks worth of ADA that would be 300 dollars worth of value settled. This can give us a really good feel of how much money is actually being transacted on the network.
Cardano’s value session in the last 12 months is 1.6 trillion a really impressive figure that compares to 2.8 trillion for Ethereum, and 3.1 trillion for Bitcoin, so Cardano’s payment value settled is around 40% lower than Ethereum, and around half of that of Bitcoin.
Of course, Cardano is going to have a lower payment value settled on its network because it’s relatively new and is a smaller network than the other two.
We know that Cardano’s total payment value settled is around 40% lower than Ethereum, so that means ADA might be valued around 40% lower than would make sense but that’s just not the case. The current market cap of Cardano is about 80% lower than Ethereum, and 90% lower than Bitcoin, so this is a huge disconnect, and it means that the value per transaction on Cardano is relatively high in relation to its market cap compared to Ethereum and Bitcoin.
If investors simply valued Cardano similar to Ethereum, and Bitcoin its market cap should be higher than it is now. This is a very simplistic way of looking at things as of course other assets may have other types of value that people place in them like Bitcoin being in the ultimate store of value asset, but it’s a start to see where Grayscale seems to find a disconnect between valuation, and what’s happening fundamentally.
Cardano ADA MAU and Value Per User
The next metric that we can look at in comparison to Bitcoin and Ethereum is the number of monthly active users known as MAU, which on Cardano is currently around 2.8 million, so we have 2.8 million monthly active users versus 7 million on Ethereum as of publishing the Grayscale report. Since July the MAU Cardano has been going up whilst Ethereum’s monthly active users have actually been dropping a little bit.
We can put this down to a few reasons firstly we would expect with smart contracts, and the development cycle of Cardano that monthly active users would be growing. With Ethereum it’s slightly more difficult because there are many scaling solutions like Polygon and Avalanche, which are taking many transactions off of Ethereum, but technically it is still Ethereum ecosystem growth. It’s important to understand the differences here, and what’s actually happening.
In addition to these figures though Grayscale actually uses something called value per user, which we can get by dividing the market cap by its active users. Cardano’s market cap is around 70 billion, and active users on the network around 2.8 million, which means that the average value of every user on the network is around $28,000.
On the other hand, Ethereum’s market cap is 400 billion and has seven million active users, so that gives us a value per user of around fifty-seven thousand dollars. It’s not the most accurate representation of every individual user on the Network as people don’t have the same amount of coins held in their wallet, but it’s a good indicator of a network’s current, and potential value.
Since January of this year, Cardano and Ethereum’s value per user has trended very close to each other, which means people are valuing them at the same level, but there was a divergence around August with Cardano’s value per usually going far below Ethereums.
Grayscale suggests that the lower value per user of Cardano is only temporary, and will eventually correct itself once again to match the value per user of Ethereum. This can only happen if the users on Cardano will decrease over the next few months, which is very unlikely or if Cardano’s market cap goes up over the next few months. Grayscale is betting on the latter and uses this metric to strengthen their conclusion that Cardano is undervalued right now.
Cardano Transactions and Fees
Lastly, we have monthly annualized fee revenue not unsurprising that Cardano has exploded from just 20 million dollars in fees in August up to 56 million in September that’s an almost three times increase in transaction fees within a month. This is obviously incredible growth, and it really is concrete data that shows how the launch of smart contracts has been a success.
It’s obvious that a blockchain going from no public smart contracts to public smart contracts will mean more transactions, but we haven’t even seen virtually any dApps actually launch on Cardano yet, so I expect this to honestly go up from here once we have a bunch of DEXs and lending platforms that actually get launched.
Cardano right now is processing around 100,000 transactions a day, which is 13 times more than what the network was processing at the beginning of this year.
My Opinion
Right now, Cardano is a smaller Network than Ethereum according to those metrics by about 40 or 50 percent, but with a market cap of just 20 percent that of Ethereums. There can be a few reasons for this, and a few potential outcomes in the future.
The first is that Ethereum just has a more developed ecosystem of dApps, and has a far larger amount of value locked in that ecosystem with applications like AAVE and Compound, who themselves are brands, and applications with their own value.
Cardano doesn’t have that yet, and so is rightly valued lower than ETH. Investors can value Cardano on future expected growth that’s not the same as actual de-risked development, and locked-in value.
The second reason is that value is given to those chains because of other factors like Bitcoin having that huge store of value aspect being a less risky play, and becoming literally legal tendering countries. Plus the fact that institutions are now willingly buying Bitcoin, and Ethereum whilst Cardano is not so much.
There are some of the reasons why that disconnect might be here, but things could change in the future. The first reason why it might change is that ADA keeps the same multiple as it does now, and just grows. If transaction fees value per user and active wallets continue to grow, and it continues to be valued at the same multiple, the price should appreciate.
Secondly, investors could just give ADA the same multiple of those metrics as Ethereum and Bitcoin, and therefore we’d be looking at a large upside for ADA all else being equal. If both the fundamentals grow in comparison to the other chains, and the multiple that investors give ADA matches the other chains too, and that’s doubly good for investors, but the reality is probably going to be somewhere in between that, and we also don’t know what the future holds in terms of how much growth there will be in the future for Cardano.
As Cardano develops if it is successful, and that’s a big if for now then we could see it making up a larger percent in funds just like Grayscales and that in itself would mean more buying pressure, and future re-ratings for ADA, but this relies on continued success for Cardano with users being attracted to the network.
Also, pro-tip crypto funds like Grayscales aren’t available for most of us to invest in even though the fund has around half a billion under management and had a very nice return over the last 12 months around 400 percent you and I are shut out of investing. Not an issue though because this is crypto luckily.
Grayscale gives us a complete step-by-step breakdown of what they’ve invested in, and how much each crypto makes up of the fund, so if you want to copy or get inspiration from Grayscale’s investments you can use a portfolio trading bot on a platform like KuCoin, which I use simply go to the trading bot feature, and then choose your cryptos to choose how much you want each crypto to make up of the portfolio, and the trading bot will keep the cryptos in your fund at the percentages you want them to be at.
If you want to change the fund or change the percentages just go, and change them, and the bot will rebalance your portfolio. I do use KuCoin. You’ll have to pay trading fees of course when you trade on KuCoin but at point eight percent more or less it’s a lot slower than the 2.5 percent that Grayscale charges you, which means that you will consistently outperform them if you have the same percentage in your portfolio.
The Future
What are the future catalysts that can push investors to re-rate Cardano or push up valuations similar to others in the industry at least Bitcoin and Ethereum according to this report? We can split that into both short-term, and long-term events.
Short-term in the near future the main driving force in my opinion for Cardano’s valuation will be the successful launch of DEXs we’ve got Sundae Swap imminently launching adax, cardax, Ergodex as well all attempting to be the number one DEXs.
Although in reality whoever wins the race to be the biggest DEX son Cardano doesn’t really matter if you’re an ADA holder as it’s just a net positive for ADA, and the ecosystem. We can see from the huge rise in BNB this year that a blockchain that can seriously attract users in a lot of transactions will get re-rated by investors. BNB going from tens to hundreds of dollars per coin within a few months after the Binance Smart Chain blew up earlier this year.
ADA is in a different position for sure though already being at number three, so we’ll have to see how those price dynamics play out.
dApps will also drive traffic to Cardano, and increase its network usage, which are stronger catalysts for growth because right now a lot of ADA is just being staked. So, imagine if ADA hodlers get the option of allocating to new assets like NFTs or other tokens the network will have more value being circulated, and we’re already getting a glimpse of this with cNFT, but the ecosystem on Cardano’s is still in the early stages, and we haven’t seen a fraction of that potential yet.
If you interest in Cardano NFTs, aka cNFT, my most recent Medium post is below.
Longer-term for Cardano it’s all about emerging markets for them that is really what Charles Hoskinson has said he wants to focus on. For instance, Cardano’s investment arm Emurgo recently announced they’ll invest 100 million in developers that they hope will build out DeFi , and NFT ecosystems on the blockchain.
They’ve recently announced that they will support a hundred local startups in Africa over the next three years by giving early-stage investments in those firms.
Also directly from Hoskinson’s mouth, we understand more what Cardano actually wants to be in the future. Charles Hoskinson compared Cardano to Apple, and he wants to focus on building a Cardano App Store without the application process, and high commission fees that the App Store, and also the play store from Google actually charged.
The first step towards that is actually their partnership with Dish in America, and it’s possible that a Cardano App Store will actually be built in for devices distributed to Dish Network users if they have a phone and a plan with them. It’s going to be a platform to put Cardano apps right in front of mobile users or at least Dish customers.
This may be a bigger incentive for developers to develop on Cardano because the app wouldn’t have to pay 30% in commissions to the App Store or the Play Store.
It’s not hard to think of an Uber or an Amazon or a Doordash being built on a blockchain or at least having a counterpart on the blockchain, but I definitely think Apple, and Google are going to have a lot to say about uh something like Cardano actually having an App Store on their phones.
That is really the huge execution risk for Cardano. How much will blockchain tech be able to displace current models and breakthroughs, and those unanswered questions are maybe why we see a different valuation for Cardano rather than the more established blockchains, who already have some business models built on top.
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