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Ethereum (ETH) price has increased by 128% over the past 12 months and has gained 804,027% since opening for trading at $0.43 on Oct. 20, 2015. Despite this phenomenal growth, is there room for Ether price to rally 17x from its current trading price?

Brian Russ, the managing director of BMO Financial Group at the Colorado market, thinks it is a possibility.

On March 1, at ETHDenver, Russ spoke about how traditional finance analysts use various quantitative models to value a company, a blockchain and its token.

Selecting the Ethereum network as an example, Ross detailed how his methodology is comprised of the discounted cash flow, precedent transaction, market comparables and Metcalfes Law models.

Starting with the discounted cash flow (DCF) model, Russ explained that the model says that a company, or in this case, a blockchain, is worth the summation of all the profits it will generate forever.

The model projects forward what those profits might be and then applies a "discount rate to bring those profits back to 2024 chain dollars for a more accurate representation of what the project is worth today.

To determine what cash flows are and how quickly they are growing on the Ethereum network, Russ suggests looking at Ethereum wallet growth. Data from Etherscan shows wallets on Ethereum growing at 36% annually for the last 5 years.

Assuming a 33% annual wallet growth for 10 years, Russ estimates that 50% of the global population, or 4.5 billion users, could be using Ethereum by 2033. Russ concedes that half the worlds population using Ethereum in 10 years is a lofty assumption, but it remains a possibility.

To determine the type of profit that Ethereum generates, Russ looks at the amount of Ether issued and burned as a proxy for Ethereum revenues.

The result is $1.8 billion dollars in profit generated by the Ethereum network in 2023, and growing this figure by 33% per year for 10 years gives Russs $458 billion future value of the Ethereum blockchain.

After the 10th year, a more conservative 5% growth rate is used, and the Fed Funds rate or risk-free rate at 5% is applied to bring the cash flow figure back to 2024 dollars. The resulting $400 billion valuation reflects a 15% premium and suggests that Ethereum blockchain is undervalued by this amount today.

Similar to real estate, estimating the value of a company or property requires analyzing competitors revenue, cash flow and market capitalization. Comparing Ethereum against other early-stage tech companies that achieved dominant market share and analyzing each companies price to price-to-earnings ratio during their first profitable year, along with the average P/E ratio on a 5-year basis.

The result suggests that the Ethereum networks total value is $312 billion dollars, meaning according to the model that Ethereum is currently overvalued by 20%.

Comparing the Ethereum network to other layer-1 projects, Russ uses a formula that takes a blockchains market cap and divides it by the total value locked (TVL) on the same blockchain. Taking the sum of the market caps for the top 6 blockchain projects and dividing it by the total value locked on the 6 projects gives a total MC/TVL figure of 8.

Applying this figure to the Ethereum network (8 x Ethereums TVL at $47 billion), shows the blockchain valued at $376 billion, suggesting that the blockchain is approximately 6% overvalued.

Metcalfes law is often used to estimate a networks valuation. According to the models creator, Robert Metcalfe, because of the way new technologies scale, a networks valuation and future value should be evaluated on an exponential basis, rather than linearly. The law states that the value of a network is proportional to the square of the number of connected users.

Using data from Etherscan and looking at monthly active Ethereum users (15 million) squared gives a $225 billion valuation for the Ethereum blockchain, suggesting the networks true value is 44% below its current $400 billion market cap. Russ notes that using Metcalfes Law model kicks out a figure that is the most out of line with the other models, but theres a catch.

Taking the various outcomes from the four models used and adding a simple weighted average of 25% from each model gives an implied value of $345 billion or $2,875 per Ether, according to Russ.

Russ said,

Russ concludes that while the models ETH price valuation might not excite investors who expect ETH price to rise much higher than its current value, the use of quantitative-based models gives more accurate and conservative estimates for a projects true value. The use of multiple valuation models can also help investors identify arbitrage opportunities.

For investors, Russ says his model allows the creation of deep convictions about Ethereums current value and its potential future valuation.

Related: How will Ethereum price react to Bitcoin ETF approval?

Russ hinted that Ether could possibly do a 17x return from its current valuation. Referring back to the 33% per year growth of Ethereum wallets/profits, Russ said that using simple compounding and a 10-year view of this trend holding means that $1,000 invested in Ether today would be worth $17,319 by 2033.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

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Ethereum network is valued fairly, but ETH could still see 17x return Brian Russ - Cointelegraph