Ethereum, The Triple Halving
Price Prediction till 2023 -
Base Case: $30,000-$50,000
Target Price for Peak: $150,000
On April 17th, 2021, Justin Drake, an ethereum researcher, dropped a tweet estimating the
change in “net annual buy pressure” as a result of the
Ethereum network’s coming upgrades, EIP1559 and
Proof of Stake. He linked to a spreadsheet showing
his work and analogized the shift in buy pressure to
the amount in the ETH2.0 deposit contract and Grayscale.
When I saw the spreadsheet, I realized he was
dramatically underselling the effect. Using his math, I
calculated that sell pressure would drop 90%, the
effect of more than 3 bitcoin halving events.
Cryptocurrency enthusiasts model nearly all of their
predictions of price around the bitcoin halving events,
so I didn’t think twice about it. However, when I saw the
response to my thread, I realized most of twitter just
thought I was posting as a way to pump ethereum on
crypto twitter.
I was not. I am glad that “the triple halving”
meme really clicked for everyone as to how big the
coming shift is for ethereum. I believe every word I
wrote. But the triple halving is more than a meme or an
analogy. It’s a legitimate thesis on how asset prices are
affected by shifting money flows. The reaction to my tweet was a reaction to a crypto hype
thread, when what I was trying to communicate was much more sophisticated. I truly believe
the world is dramatically underestimating the price change we’re about to see.
The triple halving is more than a meme
The “triple halving” isn’t just a pump, it is an analysis of financial flows to model the way
Bitcoin moves as a result of the halving event and forecast what will happen to the price of
Ethereum by January 2023. In this report I hope to write an institutional grade analysis of
Ethereum towards an audience who may be skeptical of cryptocurrency as an asset class.
I challenge institutional investors who are skeptical of cryptocurrency to read my analysis
and reconsider their skepticism towards ethereum as an investable asset in the next 1-2 year
time horizon, and perhaps beyond.
Price Prediction till 2023 -
Base Case: $30,000-$50,000
Target Price for Peak: $150,000
“If you were watching in 2017, and you put a price prediction, they probably would’ve all
undershot what happened in 2017...but I think Raoul’s approach, which is looking at historical
price, I think makes sense...it’s part of the reason I got so bullish on bitcoin a while ago. I said
look every time there’s a halving, this happens, and so I’d rather take the bet... even though I
don’t have a specific price target, it’s almost like you’re embarrassed to say what you think the
actual price target is, you know, if it’s [referring to Bitcoin] sitting there at $7,000 you don’t want
to say well it might go to $100,000 ....
Even for Bitcoin , I didn’t give a price target but I said well, it’s well north of here... I would kind of
view Ethereum in the same way where if it’s a good year for bitcoin, I would expect ethereum to
also have a very good year, and likely outperform during the bull market of that phase...it’s
probably north of here and probably by a considerable amount” - Lyn Alden on a Dec2021 price
target for Ethereum, Unchained Podcast.
I love this quote because I think it shows how two incredibly astute investors (Raoul Pal and Lyn
Alden) are looking at Bitcoin and Ethereum. I’ll pause to note that while I disagree with them,
they’re both very likely positioned to benefit significantly if I’m right. Somehow skilled macro
investors always manage to do that - if they’re right they make money and if they’re wrong
they’ll make even more!
In a sense, they are both right - the price of exponential assets has an incredibly wide
confidence interval. It is really hard to know what happens. On the other hand, as Lyn admitted,
there’s a tendency to be embarrassed to say the 15x price target in case you’re wrong in a way
that makes you look silly.
I remember an episode of Meb Faber’s podcast where he talked about analyst forecasts of the
S&P 500 year to year. It turned out that while the S&P averages ~8%, it almost never returns
8% in any given year. Instead it has well known wide swings. Meb points out that if you have no
clue what’s going to happen, but you’re bullish on the S&P, you’re more likely to be right if you
take the S&P at 15% than 8% because the asset just doesn’t move in that mildly positive way
very often. You’re just putting the odds on your side. For cryptocurrency, even without all of
these catalysts, the most fair price target would probably be either far higher or far lower than
analysts would like to admit. If you’re bearish on Ethereum now, and it’s at $2000, you’re not
getting anywhere with a $1,500 price target - everyone knows Ethereum has more downside
volatility than that on small swings. If you’re right you’ll undershoot the crash, and if you’re
wrong you’ll be wrong anyways. It’s like a trader setting his daily stop loss within 1 standard
deviation of price - you know you’re getting stopped out so why even put on the trade? If you
have a belief about price action as an analyst, let it fit with the volatility characteristics of the asset,
even if they look ridiculous. Don’t be embarrassed - investing is about learning to bet your
beliefs, and if you do that you’re setting yourself up to be more likely to be right!
I also think this quote is a great way to introduce the key reason why my price target is so far
from the crowd. Notice how both Raoul and Lyn, investors who I highly respect, ground their
analysis in a bitcoin analogy. When they say “the halving has happened before,” they’re
referring to Bitcoin and how Ethereum has done during Bitcoin halvings. There are times when
valuation by analogy makes sense. However, when you have a first principles analysis like this -
looking at the inflows and outflows, the elasticity of the market itself and catalysts in front of you
- and it tells you the analogy is broken, you have to let it go. My feed is flooded with quotes on
the ETH/BTC ratio breaking to new highs. By definition if I’m right, you’ll do well by sticking with
ETH as the ratio rises, but I worry you’ll be underallocated (whatever that means for your
portfolio management plan) if you don’t see the magnitude of the move coming our way.
To get to a price target for Ethereum for this cycle that I can live with, I inverted my process. I
started with the valuations to get a sense for long-term downside risk. If I’m wrong about literally
all of the flows I’m thinking about, then this would be my base case.
Then, to get my expected peak price target, I started looking at flows. As Cem Karsan of Kai
Volatility Advisors notes, in this market fundamentals don’t have bearing on asset valuation.
It’s a flows-based world.
