Ethereum Should Be Valued Like Amazon, Says Dragonfly’s Qureshi

Overview

Haseeb Qureshi, managing partner at Dragonfly, has defended Ethereum’s valuation by arguing that it should be analyzed similarly to early-stage companies like Amazon, rather than as a mature “value” stock. His remarks were made during an appearance on the Milk Road Show, reigniting discussions about the proper financial framework for evaluating layer 1 blockchains.

Qureshi’s Defense of Ethereum

In a recent debate, Qureshi faced off against investor Santiago Santos, who criticized Ethereum’s valuation, claiming it trades at a price-to-sales (P/S) ratio of over 300. Qureshi countered that the traditional P/S metric is not applicable to blockchain technology. He argued that Ethereum’s fee revenue should be considered “pure margin” and treated as profit, rather than conventional revenue. According to Qureshi, blockchains do not incur expenses like traditional companies do, thus making their fee income more akin to profit.

He acknowledged the high multiples associated with Ethereum’s valuation but suggested that the correct way to evaluate it is not through P/S but by comparing its profit margins to those of Amazon. Qureshi pointed out that while Santos focused on the P/S ratio, he believes that the “sales” for blockchains should be thought of as the gross market value (GMV) or the GDP of the on-chain economy. He emphasized that fee income is the only observable metric, which he interprets as net income.

Furthering his argument, Qureshi drew parallels between Ethereum and Amazon’s early years, noting that Amazon delayed profitability for nearly two decades to prioritize growth. He highlighted that despite this lack of profit, Amazon was still assigned high earnings multiples by the public markets. Qureshi pointed out that Amazon had a price-to-earnings (P/E) ratio exceeding 600 during its growth phase, which he believes is comparable to Ethereum’s current P/E ratio of around 380.

Qureshi asserted that Ethereum and other layer 1 blockchains are still in an early growth phase, similar to the initial stages of the internet and e-commerce. He stressed that these technologies have been expanding rapidly and have not started generating significant profits in their early years. Despite the volatility in Ethereum’s price and the underperformance of altcoins relative to other assets, Qureshi’s confidence in Ethereum’s long-term potential has strengthened.

He expressed that nothing material has changed in recent months to warrant a reevaluation of his investment thesis. For Qureshi, a substantial shift in perspective would require a significant invalidation of core assumptions, such as a breakthrough in cryptography or a drastic decline in demand for on-chain stablecoins. He believes that short-term market fluctuations are merely reflections of sentiment rather than a departure from fundamental value.

From author

Qureshi’s arguments present a compelling case for viewing Ethereum through a different lens than traditional equity metrics. By likening Ethereum’s growth trajectory to that of Amazon, he invites investors to reconsider their valuation frameworks. His emphasis on treating fee revenue as profit highlights a significant distinction between blockchain technology and traditional businesses, which could influence how investors approach the cryptocurrency market.

Impact on the crypto market

• Qureshi’s defense of Ethereum may encourage investors to reassess their valuation methods for blockchain assets.
• The comparison to Amazon could shift perceptions about Ethereum’s growth potential and long-term viability.
• Increased focus on fee income as a measure of profitability may lead to new analytical frameworks for evaluating other cryptocurrencies.
• The ongoing debate about valuation metrics highlights the need for clearer financial models in the rapidly evolving crypto space.
• Qureshi’s confidence amid price fluctuations could attract investors looking for long-term opportunities in Ethereum and other layer 1 blockchains.