Stocks Are Overvalued. Cryptocurrencies Are Cheap, and Are Stacking Revenue. Is Now a Good Time to Buy?
The S&P 500 has reached a valuation territory that it has only seen once before, right before the dot-com bubble's collapse. Meanwhile, revenue-generating cryptocurrencies like Ethereum, Solana, and Hyperliquid are seeing their financial fundamentals improve while their c…
Intelligence analysis by Llama
The article argues that the valuation gap between stocks and cryptocurrencies has widened, making it a good time to consider buying the crypto majors. However, the author cautions that simply buying an asset that has some kind of protocol revenue because it's cheap isn't a good idea.
Imagine you have a lemonade stand, and people come to buy lemonade from you. If you charge a lot of money for lemonade, people might not want to buy it. But if you charge a little money and use some of the money to buy more lemons and sugar, you can make more lemonade and sell it to more people. That's kind of like what's happening with cryptocurrencies like Ethereum and Solana. They're making money from people using their services, and they're using some of that money to buy back their own coins, which makes them more valuable.
Analysis
A $60B Vote of Confidence
The S&P 500 has never stayed cheap for long. But, at a cyclically adjusted Shiller price-to-earnings (P/E) multiple of 40.6, it's in valuation territory that it has reached only once before -- right before the dot-com bubble's catastrophic collapse. Its price-to-sales (P/S) multiple of 3.7 is also at a record high, which isn't very comforting at all. Everyone wants to own stocks, so they're pricey.
Why Crypto is Cheap
And, as crypto is disfavored, revenue-generating coins like Ethereum, Solana, and Hyperliquid are seeing their financial fundamentals continue to improve while their coin prices remain fairly cheap. Does that mean now is a good time to load up?
The Link Between Network Activity and Value Transfer
For instance, Ethereum's transaction fees, part of which get burned, mean that holding Ether is equivalent to holding a claim on the value generated by its network activity. However, most of the surplus flows to apps, layer-2 chains, and roll-ups -- and to stakers rather than holders. And, because new supply is minted constantly (directly opposing the fee burns), at the network's normal levels of activity, holders have actually seen their value diluted slightly with each passing year. Hyperliquid, in contrast, offers a much tighter linkage between network activity and returning value to holders. It returns between 97% and 99% of its fees, depending on how they were incurred, into continuous open-market purchases of its token, HYPE. The buyback mechanism has spent more than $1.3 billion repurchasing the token, and its current run rate implies procuring about 7% of Hyperliquid's market cap over 12 months. That's an impressively high rate of value transfer that most stocks would be embarrassed by.
Key points
- The S&P 500 has reached a valuation territory that it has only seen once before, right before the dot-com bubble's collapse.
- Revenue-generating cryptocurrencies like Ethereum, Solana, and Hyperliquid are seeing their financial fundamentals improve while their coin prices remain cheap.
- The buyback mechanism of Hyperliquid has spent more than $1.3 billion repurchasing the token, and its current run rate implies procuring about 7% of Hyperliquid's market cap over 12 months.
- The article argues that the valuation gap between stocks and cryptocurrencies has widened, making it a good time to consider buying the crypto majors.
If the current trend continues, it's possible that the price of cryptocurrencies like Ethereum and Solana could increase, making them a more attractive investment option. Additionally, the buyback mechanism of Hyperliquid could continue to drive up the value of its token, making it a more valuable investment.
However, if the current trend reverses, the price of cryptocurrencies could decrease, making them a less attractive investment option. Additionally, the buyback mechanism of Hyperliquid could be disrupted, causing the value of its token to decrease.
