Ether (ETH) is up 150% in 2021, causing its market capitalization to skyrocket above $ 200 billion. Most traders fixate on the unit price, even though it is totally arbitrary, thus missing milestones and relevant comparables.
Investors, mainly those from the traditional industry, are used to comparing multiples of earnings, sales and market share. In the meantime, When valuing a cryptocurrency with multiple use cases, there is no single metric to measure its potential. Ether can simultaneously act as a digital store of value and function as the necessary token to access the Ethereum network.
To show the myopia caused by unit prices, Cardano (ADA) is trading below $ 1, although its market capitalization exceeds $ 26 billion. Therefore, the number of coins in circulation matters equally. At the other extreme, Cover Protocol (COVER) unit price is nearly $ 1,600, though its market capitalization is still less than $ 100 million.
Although the merits of comparing assets of different classes side by side are debatable, market capitalization works the same way for commodities, stocks, and mutual funds.. To analyze the size of an asset, some additional metrics are usually used, such as free float, the amount actually available for trading, in addition to the average volume of trade.
According to 8marketcap.com, Ether’s market capitalization has recently surpassed those of Novartis ($ NVS), AT&T ($ T) and Cisco ($ CSCO). Therefore, it is fair to make general comparisons with those companies, as investors can choose one or the other.
Switzerland-based Novartis International AG had its origins in 1857. With more than 110,000 employees, the pharmaceutical company made a net profit of $ 8.1 billion in 2020. Therefore, comparing a 165-year-old company that relies heavily on research, production, and distribution to a technology-based protocol that doesn’t even have servers or development equipment seems absurd.
What’s more, companies are at risk of additional stocks being created, unlike Ether’s fixed supply schedule. Similar questions arise about taxes, responsibilities and possible government control. Decentralized protocols, however, are more insulated from those risks, warranting a much higher valuation..
Cisco Systems was ordered to pay $ 1.9 billion in a patent infringement lawsuit in October 2020. In January 2021, AT&T was sued for at least $ 1.35 billion by a Seattle company. There are endless ways in which a shareholder can be surprised to rely heavily on third parties.
To conclude, although it makes sense to compare the market capitalizations of various assets, the purely technological nature of cryptocurrencies offers a much broader advantage.
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