What fundamental error exists in Tom Lee's theory of Ethereum value?

Author: Andrew Kang, Partner at Mechanism

Compiled by: AididiaoJP, Foresight News

Original title: Tom Lee, who bought 2.42 million ETH, doesn't understand Ethereum at all?

Tom Lee's ETH theory is one of the dumbest theories I've seen recently, composed of points from financial illiteracy by well-known analysts. Let's analyze it one by one. Tom Lee's theory is based on the following points:

• Adoption of Stablecoins and RWA
• Analogy of Digital Oil
• Institutions will purchase and stake ETH, tokenizing assets while ensuring network security, and acting as operational capital.
• The value of ETH will be equivalent to the sum of the values of all financial infrastructure companies.
• Technical Analysis

The argument is roughly as follows: the activities of stablecoins and tokenized assets are on the rise, which should drive an increase in trading volume, thereby driving up ETH fees and revenues. On the surface, this makes sense, but if you spend a few minutes and strain your brain to verify the data, you'll find that this is not the case.

Daily ETH transaction fees (USD)

Since 2020, the value of tokenized assets and the trading volume of stablecoins have increased by 100 to 1000 times. Tom Lee's argument fundamentally misunderstands the way value accumulation works, which may lead you to believe that transaction fees will grow proportionally, but in reality, they are almost the same as they were in 2020.

The reasons are as follows:

• The Ethereum network upgrade makes transactions more efficient
• Stablecoins and tokenized asset activities have flowed to other public chains.
• Tokenized low turnover assets do not generate much transaction fee. The value of tokenization is not proportional to the income from ETH. Someone can tokenize a $100 million bond, but if it trades once every two years, how much transaction fee can it generate for ETH? $0.10? The transaction fee from a single USDT trade might be more than that.

You can tokenize assets worth trillions of dollars, but if these assets do not circulate frequently, then it may only add $100,000 in value to ETH.

Will the transaction volume of blockchain and the fees generated increase? Yes, but most of the fees will be captured by other public chain blockchains that have stronger business development teams. Other competitors see opportunities in bringing traditional financial transactions on-chain and are actively seizing the market. Solana, Arbitrum, and Tempo are achieving most of the early significant victories. Even Tether is supporting two new Tether chains, Plasma and Stable, both aimed at transferring USDT transaction volume to their own chains.

Oil is a commodity. The real price of oil, adjusted for inflation, has been trading within the same range for over a century, with periodic spikes and retreats. I agree with Tom's view that ETH can be regarded as a commodity, but this does not directly indicate a bullish outlook, nor can it be determined what Tom is trying to express here!

Institutions will purchase and stake ETH

Have large banks and other financial institutions purchased ETH on their balance sheets? No.

Have they announced any plans to do so? No, they haven't.

Will banks hoard gasoline due to ongoing energy costs? No, it doesn't matter at all; they only pay the costs when needed.

Will banks buy shares of the asset custodians they use? No.

Come on, this once again reflects a fundamental misunderstanding of value accumulation, pure delusion.

I actually really like technical analysis and believe it can be very valuable when viewed objectively. Unfortunately, Tom Lee seems to be drawing lines through technical analysis at random to support his biases.

Objectively looking at this chart, the most obvious observation is that Ethereum has been in a long-term consolidation range. This is not much different from the crude oil prices that have also traded in a wide range over the past thirty years. Not only are we within the range, but we have also recently touched the top of the range, failing to break through the resistance level. If there is any difference, it is that Ethereum's technical indicators are bearish. I wouldn't rule out the possibility of it remaining in a consolidation range between $1,000 and $4,800 for a longer period. Just because an asset has previously experienced a parabolic rise does not mean it will continue indefinitely.

Crude oil prices

The long-term chart of ETH/BTC has also been misunderstood. It is indeed within a long-term range, but has been primarily dominated by a downward trend over the past few years, with a recent rebound at a long-term support level. The driving factors of the downward trend are that the narrative around Ethereum has become saturated, and the fundamentals fail to justify the rationale for valuation growth; these fundamentals have not changed.

The valuation of Ethereum primarily comes from financial illiteracy. This can indeed create a considerable market value, just look at XRP. However, valuations derived from financial illiteracy are not infinite. Broader macro liquidity allows ETH's market value to be sustained, but unless significant organizational changes occur, it is likely doomed to perform poorly indefinitely.