Intrinsic Value of the Ethereum Blockchain Network

Abstract

Cryptocurrency is starting to be considered as an asset class for investment portfolios because of the multiple competitive advantages it has and its beneficial correlation to other asset classes. Most investors in cryptocurrency are speculators driven by market sentiment, investing according to technical analysis. There is a gap between technical analysis and fundamental analysis in the area of cryptocurrency. With the adoption of fundamental analysis the real intrinsic value of cryptocurrency can be achieved with higher returns being gained. This research aims to identify key variables and valuation metrics of Ethereum Blockchain Networks in order to predict the intrinsic value of ether through linear multiple regression. This will involve presenting a model including fundamental variables of the Ethereum Blockchain Network and market sentiment with the objective of achieving higher returns for investors of ether. There will be a focus on fundamental analysis, rather than technical analysis, of cryptocurrency because it is presume that has a greater relation to the intrinsic value of cryptocurrency. Based on the research's unsupervised method of linear regression, a price prediction model of ether with a Mean Sum Square Error of 1.1266*e^-6 and R square of 99% is devised. The results indicate that the features of the Ethereum Blockchain Network and valuation metrics have more predicting power than the market sentiment (Crix-Crypto Index). The research highlight that the most significant variable to ether are gas price per block, transactions fees and reward to miners, and focused on the utility of ether which can be of intrinsic value and have a significant impact on investment portfolios.