Model predictions show that Ethernet will rise to $8880 in the future?
Inspired by the PlanB stock and traffic regression model, I developed a regression model for Ethernet using the total daily cost of the network.
The basic argument of Bitcoin is that it is a value store, similar to gold, so the ratio of stock to traffic is a useful basis for analyzing the value of Bitcoin. In my opinion, the basic argument of Ethernet Square is that it is a settlement layer, a trading network that can carry economic and non-economic decentralized applications. Since Ethernet Square is a settlement layer, it is reasonable to use the total daily cost processed on the network to analyze the value of Ethernet Square Network.
Daily cost regression model
The following figure shows a regression model based on the daily cost and Ethernet price processed on the Ethernet network since August 2015.
As can be seen, the value of R square of the model in the time range of about five years (August 2015 to December 2020) is 94, which represents a statistical correlation.
There are three main stages, which are related to the three price ranges of Ethernet Square. Similar to the PlanB stage model, these three periods can be summarized as stages and their daily transaction fees and the average price of Ethernet Square as follows.
The first phase (August 2015 to September 2015) costs about $20 per day, with an average price of about $1.
The second phase (May 2016 to February 2017) costs about $500 per day, with an average price of about $11.
In the third issue (December 2017 to December 2020), the daily transaction cost is about $500000, with an average price of about $33.
The daily cost consists of two parts: the number of daily transactions and the average cost per transaction. These two parts multiply equal to the total daily cost. I decided to disassemble the two parts and analyze them separately to evaluate whether we can use them to build a model.
Number of daily transactions
To count the number of daily transactions, i evaluated the transactions at the level of trading volume (TPS) per second. The following is a time series diagram of the trading volume per second of the Ethernet network.
Three stages of trading volume per second and the corresponding average TPS are summarized below.
Phase I : TPS 0.05
Phase II :0.5 TPS
Phase III :TPS 8.9
Average cost per transaction
For calculating the average cost of each transaction, I used the average cost of each transaction for the same time period as the TPS chart.
The three phases of the average cost per transaction are summarized below
Phase I :$0.004 per transaction
Phase II :$0.01 per transaction
Phase III :$0.7 per transaction
Simulated prices and daily transaction costs
I have identified the highest, lowest and average transaction volume per second for the three phases and the corresponding transaction costs for these specific dates. in the table below, there are three main parts :” maximum “,” minimum “and” average “, in which i have determined the TPS and transaction costs for each stage. For example :0.81 is the maximum transaction cost determined on the Ethernet network in the second phase TPS, which is $0.014 on that date. The total transaction cost on that day was about $962, and the regression model predicted a price of $15.6.
I outlined the fourth phase, and I believe that the maximum TPS capacity will increase once the ETH 2.0 is deployed. For the sake of simplicity, I outlined three scenarios for phase IV; five, ten and fifteen times more TPS and transaction costs from phase III.
In terms of “maximum “,” minimum” and “average “, the model appears to have a high correlation with the actual price observed for each instance.
For example, the lowest TPS observed in phase III was 4.41 and the transaction cost was $0.1. This allowed the model to calculate a minimum price of $99.8 for phase III and $82.8 for this phase.
Estimation in phase iv (5x) seems conservative as this would mean a maximum TPS of 81.4 and a transaction fee of $20.6 for phase iv, resulting in a maximum model price of about $8,880.
A historical percentage increase in TPS and transaction fees for the second and third periods is shown in the table below.
Using a four-stage price model
Apply the maximum TPS and transaction fee for the four phases (5 times for the fourth phase) to the following chart.
Four stages (five times scheme as a conservative measure) are modeled with the actual price, and the resulting model is similar to the PlanB stock-to-flow model, but uses the daily transaction costs on the Ethernet network.
The phase IV (five-fold) programme implies a maximum price of approximately US $8,880, a minimum price of approximately US $554 and an average price of approximately US $2,515.
Tracking model prices and actual prices
Using the regression formula compared with the total daily cost and the actual price, we can see that the current model indicates that the price of Ethernet Square is $1200(December 30), and the actual price is about $750.
Red indicates that the actual price is much lower than the model price, and blue indicates that the actual price is higher than the model price. The ETH price is Y and the model price is 30 days moving average.
Evaluate whether the actual price is lower or higher than the model price by percentage, we can get the following chart. Interestingly, we note the symmetry of the “too high /(too low)” difference.
Ethernet Square has high value proposition and becomes the settlement layer of innovative economy and non-economic decentralization application. As a settlement layer, historical daily transaction costs provide us with an analysis of the historical price of Ethernet.
The model presents a high correlation between daily transaction costs and ETH prices. therefore, any increase in network per second trading volume and future average cost per transaction seems to be associated with an increase in ethernet network valuation.
The model predicts a conservative maximum price of about $8880 for the next phase, which will occur when the volume of trading per second increases significantly from the current phase 3 average TPS 8.9. A ETH 2.0 offering higher volume per second could be a catalyst for increased network usage and higher prices per ethernet.