Jake's take

To the moon?

From virtually zero in 2009, to 20 billion USD in 2015, to around 3 500 billion (3.5 trillion) USD in early July 2025.

The total market value of cryptocurrencies continues to puzzle me.  

Bitcoin alone accounts for nearly two-thirds, with a market “capitalization” of 2 200 billion (2.2 trillion) USD and a price per coin of roughly 111 000 USD.

For comparison, the total “market cap” of extracted physical gold could roughly be estimated in July 2025 to be around 22.4 trillion USD (209 000 tonnes at 107 000 USD per kg).

Around the same period, the world’s five most valuable tech companies reach market caps of 4.0 trillion (Nvidia), 3.7 trillion (Microsoft), 3.2 trillion (Apple), 2.4 trillion (Amazon) and 2.2 trillion (Alphabet).

Crypto’s aggregate market value is thus comparable in size to 16% of the aggregate market value of all extracted physical gold, and close to the market cap of one of the top tech leaders.

Bitcoin itself has an aggregate value close to that of all USD banknotes in circulation, and one coin is roughly worth one kg of gold.

(By End November 2025, Gold has increased to 134 thousand per kg, while Bitcoin retreated to around 90 thousand USD.)

What’s going on, financially speaking, when some code and a collection of ledgers are suddenly worth billions. Is there any substance for that value?

The following is an attempt to debunk cryptocurrencies.

Clarifications

Let’s condense the extent of the crypto-sphere to the following 6 types of “crypto-assets”.

Pure cryptocurrencies are native coins of blockchains that don’t support smart contracts and instead exist only to transfer the native coin itself. Bitcoin, the first cryptocurrency and foundation for all crypto, dominates pure cryptocurrencies.

Platform native coins support general purpose smart contract platforms and are needed for anything happening on the platform. The most well-known example is Ether, the native coin of the Ethereum platform.

Decentralised finance tokens give access to a decentralized financial service. The service could for example be lending against collateral, or exchange of tokens.

Utility tokens are defined here as all other non-platform tokens or coins that represent “micro-currencies” used to buy a specific utility. For example, a network could provide mobile bandwidth against provision of a token. Many implementations of this principle exist. Utility tokens are NOT vouchers, as the utility that can be bought with the tokens is not fixed.

Meme tokens exist only for fun and speculation.

I would call all these cryptocurrencies.

Stablecoins, on the other hand, are “crypto-assets” backed by reserve assets, often referencing fiat currencies or even precious metals.

Stablecoins themselves are a hot topic, but their valuation is relatively self-evident.

How can a cryptocurrency acquire value?

A person holding a share in a company is legally entitled to a share in economic benefits and to participation in the governance of that company. What rights are associated with holding a cryptocurrency?

Crypto is replete with vivid but meaningless jargon about tokens “powering” “ecosystems”, but for “pure crypto”, there are no rights or entitlements at all.

Cryptocurrencies are perceived to have certain functions:

• As a medium of exchange
• As a (perceived) store of value
• As a (perceived) stake in a project
• Speculation and entertainment

Several features add to the perceived value of cryptocurrencies compared to other assets with similar functions, and distinguish cryptocurrencies amongst themselves:

Privacy, perceived freedom from “third-party” interference, perceived resilience, 24h tradability, scarcity (for some), instantaneity, and for some cases certain forms of utility (“transaction validation”, “staking”).

The first two functions, medium of exchange and store of value, are “monetary” functions. Cryptocurrencies cannot fulfill one key monetary function: serving as units of account. But they can in theory be used as a medium of exchange, and can be perceived as a store of value.

The third function is as a perceived investment.

Finally, “Speculation and entertainment” refers to a function of pure gambling.

Let’s analyse each of the four purported functions of crypto and ask ourselves how well crypto performs these functions compared to other assets.

From there, let’s ask ourselves how sustainable demand for cryptocurrencies could be, and what could be a fair value.

Medium of exchange

Utility coins and platform native coins are in a sense micro-currencies used to acquire a specific service, where that service can only be acquired with that coin. Ether is a micro-currency used to pay for validation services.

As a medium of exchange, it is possible to say something about a possible value of cryptocurrencies.

The following is inspired by a modified version of the equation of exchange, a fundamental identity in monetary economics.

Supply of coin = Demand for coin

Supply of coin = Medium of exchange demand + Store of value demand + Investment demand + Speculative demand

Supply of coin = Medium of exchange demand + Other sources of demand

With:

• X = USD vs token exchange
• M = monetary mass of token
• P = price level in USD of basket of goods and services paid with token
• Q = expression of the volume of goods and services paid with token
• V = transactional velocity of circulation of token

This says that demand as a medium of exchange is a function of the volume of transactions realized, in USD, i.e. quantity times price, divided by the velocity of circulation.

The aggregate value of a token, expressed in USD, accommodates that demand.

• IF, a cryptocurrency is free-floating, and monetary base is fixed (as for Bitcoin), we could assume that the volume of effective demand for transactions and the velocity of circulation influences the exchange rate.
• IF a coin is a stablecoin, so that the exchange rate is fixed, in that case the monetary mass of the stablecoin would adapt to satisfy the need for stablecoin to process total transaction volume.

Of course, if a coin is a stablecoin, there is no valuation problem, because its aggregate value is close to “base times exchange rate”, and the latter is fixed.

For a free-floating cryptocurrency, under purchasing power parity, it could then be the exchange rate that would adjust to demand, which comes from transaction volume (price times quantity) and velocity.

Ok, let’s try to apply this to Ether.

Let’s assume for simplicity that monetary base M is known and fixed.

We also assume for a moment that Ether is not held as a store of value, a perceived investment of for pure speculation.

Q represents the quantity that’s currently purchased with the coin, and P represents the USD price of that utility in the USD economy.

Velocity V expresses the idea that any given currency unit is used V times per year in transactions and lies idle between transactions. Transactional V is a total wildcard for a cryptocurrency.

In real economies, where the medium-of-exchange function is the main driver of velocity, V reaches from around 0.5 in China and Japan, to around 1.1 in the EU, up to around 1.36 in the US.

Ether is used to pay for smart contract “gas fees”.

P could then represent the price in USD for similar services in the USD economy. A good example of a service that is not “pure crypto” that could be accessible on Ethereum would be setting-up and transferring smart contracts representing security tokens, accessible by paying “gas fees”.

It should be added here that the type of services that Ethereum provides, are services that people generally want to pay as little as possible for. Many payments within the EU are essentially free of charge, even instant payments. Identity verification and authentication services are generally paid for, not by users, but by their banks. P should thus at least be assumed to be “under pressure”.

Suppose Ethereum hosted nothing else than smart contracts for security tokens, and its value was only based on its role as a medium of exchange for these transactions, and:

• V = 1.36
• Cost P of setting up securities accounts, settling trades, and related costs and inefficiencies in the traditional financial economy, for these securities, is imagined to be 0.5% of transaction volume

With an Ethereum market cap beginning July 2025 of around 340 bn USD, the yearly volume of security token transactions on Ethereum would have to be at least 340 * 1.36 / 0.005 = 92 trillion USD.

Based on data from the World Federation of Exchanges, the total value of stocks traded worldwide reached approximately 110 trillion USD in 2023, while for the US that volume is close to 35 trillion USD.

Close to all worldwide transactions in public stocks would thus have to happen on Ethereum to even come close to justifying a 340 billion USD “monetary value” solely on real medium of exchange grounds.

This reasoning was based on V = 1.36.

But for users, the “micro-currency” concept creates problems. In addition to existing business risks in everyday life, users have an additional risk related to the micro-currency they need to acquire to make payments (e.g. Ether). They would likely rather prefer to pay services in their reference currency.

Participating companies and processing units should also prefer revenues in fiat currency due to the uncertainty. Their cost structure is in fiat currency, and the exchange rate risk is an unsustainable business risk. In our brave new world, they would receive Ether.

Users and participants may thus well dislike holding a volatile asset and circulate it much faster than velocity of fiat currency. If average holding period between transactions was only one month, even 110 trillion USD transactions would lead on a monetary value of “only” 45 billion for Ether.

What “medium of exchange” demand is there really for Ether?

We can try to distinguish two types of demand:

• Pure crypto demand (could evaporate)
• Real transactions (commercial transactions unrelated to other crypto)

The real part is likely to still be very small.

A lot of what happens on Ethereum is based on transaction validation of tokens and smart contracts specifically in relation to other pure crypto activities.

These transactions are entangled in a web of crypto activities, and thus highly linked to crypto in an unhealthy fee-back loop.

But even when including all current transactions, Ether seems largely overvalued.

In May 2023 the USD value of total monthly fee generation on Ethereum was reported to be 438 million USD equivalent. If we extrapolate this to a year, we will reach total fees paid around 5 256 million.

If transactions were the only reason for holding Ether, with V at 1.36, we could then reasonably expect Ether to have an aggregate value of 5 256 / 1.36 = 3 865 million or 3.9 bn USD, 1% of the current market cap.

The aggregate value of Ether cannot be explained by its current medium of exchange function.

Admittedly, there are some future business cases emerging for platforms like Ethereum, especially around stablecoins. Stablecoins are often based on public blockchains.

The reasoning based on the quantitative equation presented earlier can be adapted for expectations of future exchange volumes, which will be presented under “stake in a project” later.

Store of value

Bitcoin represents nearly two thirds of aggregate crypto market value. But as a medium-of-exchange Bitcoin has many weaknesses, transactions being costly and slow.

Bitcoin is instead perceived as a store of value. The notion that a cryptocurrency can be a store of value is controversial.

The store of value narrative entirely rests on a shared belief that Bitcoin is “special” and thus scarce. Such a belief could evaporate.

Bitcoin is the original cryptocurrency, ranks high on decentralization (no organisation, anonymous origin), scarcity and perceived privacy.

Bitcoin is indeed scarce as its money supply has an absolute limit of 21 million. Its effective money supply is slowly decreasing, because accidental loss of keys produces a slow decrease in accessible bitcoin. “Zombie” addresses, for which the private key is lost, will become an ever-bigger part of the total base of the coin.

This contrasts it with fiat currency, whose base can be increased. Bitcoin enthusiasts believe that fiat currency’s monetary bases will inexorably be inflated. In a period of rising government deficits, this line of thought finds a resonance among ideologies suspicious of government.

But Bitcoin isn’t scarce in the way gold is scarce. It must compete with a myriad of other cryptocurrencies that could also be held as a store of value, and with other commodities, precious metals and collectibles.

What’s more, blockchains can experience a hard fork. A hard fork essentially leads to two cryptocurrencies where there used to be one, arguably a form of doubling of the money supply (cf Bitcoin Cash).

One key feature of Bitcoin and other cryptocurrencies is that creation of private wallets, and transactions between them, potentially for enormous amounts, are unstoppable. There is no need to use a crypto exchange, so that AML controls on crypto exchanges only skim the surface. Crypto exchanges give a public value to the coin, but they are not needed to exchange it. For Bitcoin, which is purely anonymous, no organization or foundation having any influence on its evolution, outside interference into private wallet activities is physically impossible.

What’s more, individual nodes could be stopped, but activity can and will always move to somewhere else. The system thus looks resilient even under high stress (provided both energy and internet access remain available).

Here we arrive at a key tenet:

Bitcoin transactions seem unstoppable, and the system looks indestructible.

These properties are key to its attractivity, and maybe the key feature that could protect its value under certain scenarios.

But exactly the fact that the transactions are unstoppable could also increase the determination of regulators to eventually exclude it from the financial system, as has happened in China.

I regard it as very likely that coordinated attempts to exclude bitcoin from the financial system will come in the EU, and eventually even in the US. Possible routes would be to ban it from exchanges and isolate it from the financial system, so that there are no observable prices.

Regarding privacy, there is one important caveat for bitcoin: when public keys are revealed, privacy evaporates completely because all transactions are publicly visible for everybody. This means that any process that identifies public keys interferes with the basic business proposition of privacy. If somebody knows your bank account, that doesn’t mean he sees all your past transactions forever. On public blockchains like bitcoin it does. While there is scrambling technology, it’s not clear that such scrambling can’t be overcome.

Bitcoin privacy should tend to decrease, if identities are mapped, which is increasingly the case for regulatory reasons.

The narrative that a cryptocurrency (Bitcoin) is a store of value must be believed. As long as that belief remains intact, a certain percentage of wealth may continue to allocate towards bitcoin.

But as soon as the belief in that narrative will evaporate, there will not be much in the way to stop Bitcoin from imploding. That’s because its value does not rest on any tangible revenues or cashflows.

Stake in a project (investment)

The dual aspect of utility and stake is a central tenet of the current crypto narrative.

Crypto can be held as a stake in future adoption. Not only current volumes exchanged matter, but also expected future volumes exchanged.

In that case the equation could be like the following, if we suppose M, V and P to be constant:

We thus could consider expectations for an increase in future volumes. But we need a discount rate coherent with a risky asset (r).

Such a discount rate should certainly be at least around 20%, considering how volatile prices are. Discount rates used in venture capital valuation are typically around 40%.

Is there any scenario where we could expect momentous and real growth in transaction volumes?

Currently, you hear the idea that stablecoins could bring a lot of new volume to public chains.

But it is important to see that the most innovative payment systems in the world are not based on anything like crypto. In China, WeChat offers an extremely convenient and effective payment solution that has nothing to do with crypto. Peer-to-peer payment systems develop everywhere (DigiCash in Luxembourg). Instant payments are in place in the EU, making bank transfers extremely fast (10 seconds), for no cost, eliminating yet another “advantage” of crypto.

But let’s even assume that in a fractured international financial system, transferring a stablecoin can be cheaper than transferring money using standard payments. There is thus a conceivable scenario for there to be a level of real demand emerging, to realize international payments based on stablecoins, which may require Ether (assuming the stablecoin uses the Ethereum public blockchain).

Based on the equation above, let’s fantasize for a moment, and even say that the equivalent volume of all intra-EUR non-cash payments could in 5 years be done worldwide with stablecoins based on the Ethereum platform. Let’s suppose that to be about 230 trillion EUR per year.

In a scenario involving international tensions, let’s suppose there’s a 25% probability to reach such transaction volumes, and that 2 % of that amount would be effectively paid in fees using Ethereum.

Using our reasoning above we can calculate (assuming close to zero current real transactions):

Monetary value of total Ethereum money base today = (230 * 0.02 * 0.25 / 1.36) / (1,2)^(5) = 340 billion EUR

In the future, it could then reach: (230 * 0.02 / 1.36) =3,4 trillion.

With this reasoning we approach current market values of Ethereum’s monetary base, but we needed to assume a 25% probability for the equivalent volume of all intra-EUR non-cash payments in 5 years to be done with stablecoins based solely on the Ethereum platform.

There are problems even if we suppose payments could technically turn out like this.

On one hand inflated expectations could cause people to prefer holding on to the currency rather than using it, thus paradoxically undermining its adoption as a real medium of exchange.

But even if this does not undermine it, medium of exchange and investment functions are likely incompatible because of incentives.

A key crypto ideal is that both founders and users are part of a community held together by holding the coin.

Yet, there are incentive problems for founders.

Efforts that founders (and developers) put into developing the platform will benefit all (passive) users holding the platform coins, not just them. Compared to passive holders, founders would be working for free. Founders would prefer to hold equity rather than a micro-currency like Ether. Developers will either have that incentive problem or they will have to be paid.

Micro-currency must then be sold to “get the money”. By doing so founders end up holding an ever-smaller portion of the micro-currency and an ever-smaller incentive to move the platform forward.

This leads to an incentive to “pull the rug” and stop putting efforts into the project.

What’s more, in a future state of steady transaction volumes, founders would not have any remuneration at all (let’s leave “staking” argument out for the moment), which could accelerate the phenomenon.

This is not only theoretical. In the wonderfully illustrated Ethereum foundation report from 2024, we find the following information:

• Ethereum Foundation spending in 2023: 134.9 M USD
• Ethereum Foundation total Treasury in 2023: 788.7 M USD in ETH (Ether) and 181.5 M USD in non-crypto (970 M in total)

This means that if Ether does not increase in value compared to 2023, and expenses continue, Ethereum Foundation would have no stake at all anymore after 7 years.

For bitcoin the problem is even worse, as there is no bitcoin foundation, only spontaneous collaboration by the community can lead to upgrades. Imagine how spontaneous that collaboration will be in a world where bitcoin transactions don’t grow anymore and people would be essentially working for for free. It’s called the tragedy of the commons.

Based on the risks borne by users and the incentive problems for founders, all stakeholders should be assumed to prefer another financing and operating model than one based on a free-floating micro-currency like Ether.

What exactly gives Ethereum its value then?

The interest of users, nodes and founders is currently aligned thanks to a collective belief based on a narrative of hype.

In my view the incentive system only works during bubble-like enthusiasm and falls apart in a state where the value remains steady, or worse, declines.

A for-profit company called Ethereum, or even a state utility called such, developing a cryptographic transaction platform, providing services for which people want to pay as little as possible, could technologically do much of the same and have the same “usefulness”, but would not likely generate even a fraction of the interest.

The decentralization narrative performs the magic.

Speculation and entertainment

What remains is the dimension of pure speculation.

The game-like guessing which may be the next successful meme-coin, the zoo of projects and constant experimentation is a form of entertainment.

What’s certain is that there IS demand for the casino-like features of cryptocurrencies, in the same way that there is demand for a roulette table in a casino.

Crypto as a lottery has one big advantage over the traditional game industry, profits are in a sense distributed among a multitude of participants.

But let’s not forget the drawbacks, notably that loss of key means loss of assets, which favours people wagering small amounts.

Conclusion: brace for a hard landing

Strong feed-back mechanisms would accelerate a crash in the value of crypto in case of a loss of confidence:

• People would prefer not to use services involving crypto platforms, and minimize the time they hold such a currency, for example for stablecoin payments or security tokens, velocity would suddenly increase, demand would fall
• The store of value narrative would start to be at risk, and early “hodl”ers, who were accustomed of thinking of themselves as wealthy, would suddenly run for the exit
• As the investment case crumbles, people would see no reason anymore at all to “bet on future adoption”

In summary

• A person holding a cryptocurrency (other than a stablecoin or security token), has no legal entitlements
• Most cryptocurrencies face an unresolvable dilemma: not verifying the identity of public keys is ethically and legally unsustainable, but when public keys are revealed, little privacy remains because all transactions are publicly visible
• Cryptocurrencies function as a perceived store of value, as a medium of exchange, as a perceived stake in future adoption and as an asset for pure speculation
• On closer examination, the use of cryptocurrencies for these functions is flawed, except for pure speculation
• On transactional grounds, cryptocurrencies, and specifically Ether, are wildly overvalued
• About the equivalent of all public stock traded worldwide in 2023 (about 110 trillion USD) would have to be implemented and settled as security tokens on Ethereum, to even remotely justify the current aggregate value on purely transactional grounds
• Alternatively, we would need to assume a 25% probability for the equivalent volume of all intra-EUR non-cash payments to be realized in 5 years with stablecoins based solely on the Ethereum platform, to justify Ether’s current aggregate value
• The impossibility to control the setup of self-custody wallets on Bitcoin or the transfer of value between such wallets, is unsustainable
• Currencies heavily used as a medium of exchange for illicit transactions are likely to be, sooner or later, the object of bans by disconnecting them from the financial system
• Demand for pure speculation is a major component of aggregate market values, and such market values should be seen mainly like stakes in a casino game
• The dual aspect of “utility” and “stake in a project” is the central narrative of free-floating cryptocurrencies, often presented like an alternative financing model
• This narrative does not resist close examination: founders should be expected to prefer holding stock, users and nodes should be expected to prefer paying and receiving fiat currency
• Misalignment of incentives, especially for founders and developers, make free-floating cryptocurrencies unsustainable as a financing method
• Without the narrative of hype, both users and founders (developers) would prefer to avoid free-floating cryptocurrencies
• Cryptocurrency market values, including Ether and Bitcoin, could heavily deflate when the narrative changes