Valuation Multiple Data Analysis on the Relationship between Ethereum Price and Revenue

Analysis of Ethereum Price and Revenue Relationship using Valuation Multiples

Author: SAM ANDREW; Translation: MarsBit, MK

Ethereum has the attributes of productive assets, as it can generate profits that belong to token holders. But is it considered a productive asset like stocks? Does the valuation multiple of Ethereum affect the price of ETH?

Valuation multiple is a heuristic method for evaluating asset value. Google trades at 30 times earnings, while NVIDIA trades at 230 times earnings. If Google’s current earnings remain unchanged for the next 30 years, it would take 30 years to recoup the investment in Google. If Google’s earnings grow, the required number of years would be less. Compared to NVIDIA, Google is relatively “cheap” in terms of valuation. Market valuation, such as 30 times and 230 times, is not the sole driving factor of investment returns, but it is an important one. Expensive assets, like NVIDIA, already include high growth expectations in their current valuation multiples. If they fail to meet these lofty expectations, the price will plummet.

Similar valuation multiples can also be applied to the crypto field. Market capitalization divided by total fees is a crypto valuation multiple, where market capitalization represents the current market view of asset value, and fees are the total revenue generated by the protocol. Therefore, the revenue multiple and profit multiple of a blockchain are the same.

What is the valuation multiple of Ethereum transactions?

The rolling seven-day annualized fee multiple for Ethereum transactions is 100 times. Since the summer of 2022, the fee multiple for Ethereum has fluctuated between 25 times and 235 times (see the chart below: ETH price and market cap/fees since the 2022 low point).

Data source: CoinMetrics,

Unexpected Relationship

The above chart shows the inverse relationship between ETH price and valuation multiple. The best time to buy ETH was at the end of 2022 when the price was around $1200. However, at that time, the valuation multiple of ETH was higher, around 200 times the fees. By the spring of 2023, the price of ETH approached $2000, but its fee multiple dropped to 50-100 times.

The inverse relationship between price and valuation multiple is unexpected. Typically, it is more cost-effective to buy an asset when its valuation multiple is lower. Multiples are usually lower before an asset reaches a turning point. The market realizes that the asset is undervalued. As the price rises, the valuation multiple also increases.

The chart below (2010s Bull Market: S&P 500 Index and P/E Ratio) illustrates the general relationship between price and multiples. It depicts the trend of the U.S. stock market’s bull market in the 2010s until the outbreak of COVID-19. The S&P 500 Index traded at around 15 times P/E ratio at the beginning of this decade, averaging 18 times since 1928 and 26 times since 2000. In 2011, the U.S. emerged from the global financial crisis, and interest rates reached historical lows, marking a turning point. Since then, prices and multiples have steadily risen.

Data source: Macro Trends

So, what can we infer from the multiples of Ethereum?

Do the multiples of Ethereum indicate whether ETH is “cheap” or “expensive”? How does “cheap” or “expensive” manifest in the price performance of ETH? Can this be seen as a good buying opportunity, similar to the stock market? These questions can be answered by analyzing historical data.

In five years, the price of ETH has risen from $10 to over $4,000. This 400-fold price change makes it difficult to observe the relationship in a single chart. Instead, different periods are highlighted to illustrate the trend.

The bull market in 2017 highlighted the inverse relationship between multiples and prices. In early 2017, the multiples of ETH reached an astonishing 7,700 times (see the chart below: 2017 Bull Market: ETH Price and Market Cap / Multiples). However, in terms of price trends, it was a good time to buy ETH, with a price of around $10. Subsequently, the price of ETH increased tenfold, and the multiples dropped to 100 times.

Data source: CoinMetrics,

The bull market in 2021 also showed the same trend. In early 2020, the price of ETH was around $200, and its multiples were 650 times (see the chart below: 2021 Bull Market: ETH Price and Market Cap / Multiples). The price of ETH increased 24 times, while its multiples compressed to 22 times.

Data source: CoinMetrics,

The bear market of Ethereum also exhibited the same inverse relationship. In early 2018, the multiples of ETH dropped to a low of 200 times, while its price reached a peak of $1,000 (see the chart below: 2018 Bear Market: ETH Price and Market Cap / Multiples). A few months ago, the multiples of ETH exceeded 3,000 times (see the previous chart: 2017 Bull Market: ETH Price and Market Cap / Multiples).

Data source: CoinMetrics,

Similarly, the time to sell was also at the end of 2021 when the multiples of ETH dropped to a low of 25 times, while its price reached a record high of $4,000 (see the chart below: 2022 Bear Market: ETH Price and Market Cap / Multiples).

Data source: CoinMetrics,


The price of ETH and its multiples exhibit an inverse relationship. History has shown that it is best to buy ETH when its multiples reach their peak and sell when its multiples reach their lowest point. This means buying ETH when its valuation multiples are highest and selling when its valuation multiples are lowest.

This is very counterintuitive and different from trading productive assets like stocks. What explains this peculiar relationship?

This counterintuitive conclusion can be explained in the following ways:

  • The market is forward-looking.

  • ETH is not valued based on multiples of fees.

1. The market is forward-looking

Whether it’s stocks, commodities, or cryptocurrencies, the market is forward-looking. Prices reflect future expectations rather than past events. It can be understood in this way: the value of a company is based on its future cash flow.

The market cap / fee multiple reflects the fees of Ethereum at a specific point in time. The fees used to calculate the multiple are the sum of fees in the past seven days multiplied by 52 weeks. It does not reflect the future fee potential of Ethereum. The fee figure is not a forward-looking indicator.

Analyzing historical data confirms that the Ethereum market is forward-looking. In the bull market of 2017, Ethereum fees had already risen before the surge in Ethereum prices (see the figure below: 2017 Bull Market: ETH Price and Fees). Note that prices did not drop as rapidly as fees did in early 2018.

Data source: CoinMetrics,

A similar but weaker trend appeared in the bull market of 2021. As of May 2021, prices had already risen before the corresponding increase in fees (see the figure below: 2021 Bull Market: ETH Price and Fees). However, in the summer of 2020, fees nearly doubled while ETH prices did not rise correspondingly. In addition, the growth in fees in early 2021 led to an increase in ETH prices. The first turning point may have been due to Covid. In the summer of 2020, people were in lockdown. DeFi applications experienced explosive growth. As a result, users’ expenses on Ethereum increased. However, the investment community did not pay attention to the crypto sector.

Data source: CoinMetrics,

In the bull market, the evidence that ETH prices rise in advance to cope with the ever-increasing Ethereum fees is the clearest. In periods of ETH price decline or consolidation, this relationship is neither negated nor confirmed. For the sake of simplicity, we have omitted charts of ETH prices and fees in bear and consolidation markets.

2. ETH is not valued based on multiples of fees

The market may not value Ethereum based on multiples of fees. If the market indeed did, then the prices and fee multiples of ETH should vary somewhat in sync. The logic should be that lower multiples often mean more attractive entry prices, rather than the opposite.

The fee multiples of Ethereum fluctuate dramatically, tending towards higher valuation multiples. Since 2016, the multiples of Ethereum have fluctuated between 10x and 8800x. Since 2021, this range has narrowed to 20x to 235x. Valuation multiples are still relatively high.

Ethereum has productive, commodity, and store of value attributes. The valuation of productive assets is based on multiples of profit, while commodities and store of value assets are not. It is difficult to explain the valuation of ETH based on multiples of cost, which may indicate that ETH is more seen as a store of value asset rather than a productive asset.

However, there is a complex issue here! If ETH is not valued as a productive asset, why does the price anticipate the growth of costs? In essence, it shouldn’t. After all, if ETH is a store of value asset, the growth of Ethereum’s costs should not have a significant impact on its valuation.

But costs do have an impact on the price, how much of an impact is hard to say. The price of ETH is influenced by multiple variables, including macro factors, regulations, and competition. It is impossible to isolate different variables to determine which one has the greatest impact on price.

In the cryptocurrency field, especially in Ethereum, fundamentals such as costs are indeed important. Fundamentals determine the health and prospects of the network. For Layer 1 blockchains, fundamentals can only be achieved in terms of valuation network. Most of the value of a blockchain lies in its monetary nature. Its ability as a store of value and value transfer. Its ability to protect the network. Protocols and applications built on Layer 2 blockchains rely more on their productive asset attributes, as explained in “Token Value Creation: Funnels into one thing”.

Therefore, you cannot derive the price of ETH from multiples of transactions. The “cheap” or “expensive” multiples of Ethereum do not explain much. But Ethereum’s indicators, especially its costs, drive price fluctuations.