When investors start to doubt: Why has the public valuation based on the P/E ratio failed

“People tend to overestimate what can happen in two years but underestimate what can happen in ten years.”

Market Psychology Shift

In recent years, investors’ perceptions of the crypto industry have changed significantly. In 2024, instead of nihilism (believing everything is meaningless), we are entering a new phase – financial skepticism.

This skepticism does not entirely dismiss the value of digital assets but suggests that current valuations are overly inflated. The dominant view on crypto discussion platforms is: these tokens may have value, but their true worth could be only 1/5 or 1/10 of the current trading levels.

Problems with Traditional Financial Metrics

Whenever the largest layer-one blockchains (L1) announce results, smart contracts and decentralized exchanges (DEX) try to justify valuations using metrics like P/E, gross margin, or Realized Economic Value (REV).

However, these efforts face a bigger issue:

The launch of profit-generating decentralized exchanges (like Hyperliquid) has created a new context. The market begins to compare: why invest in unprofitable public chains when there are other assets with clear buyback mechanisms and tangible profits?

Some buyback-based tokens (buyback) show better performance. The market immediately reacts: “Finally, we’ve found a token with real profits and a reasonable P/E ratio.”

But this is where confusion begins.

The Deeper Issue

The problem isn’t that blockchains lack high profits. The issue is: people are starting to believe that even if a new public chain wins the competition, there’s no reward worth fighting for.

If Ethereum is truly just a “meme,” if it can never generate real revenue, then even a victory cannot justify its current valuation. This competition isn’t worth participating in because all valuations are artificial.

Half of the comments on crypto discussion forums blame someone: venture capitalists, big traders, founders, or liquidity farmers. But the truth is:

Everyone is greedy. But that doesn’t matter. Any well-functioning market doesn’t require participants to act against their own interests. If we value the industry’s future correctly, then even with greed, investments can still succeed.

Protecting Against New Blockchains: Probabilistic Valuation

Can new challenger blockchains win? If they truly have a chance, their valuation should be based on the probability of success.

If Ethereum is valued at $30 billion and Solana at $8 billion, then a project with a 1-5% chance of becoming one of them should be priced accordingly.

This isn’t new. It’s similar to other fields—like biotech. A drug expected to cure a serious disease but with only a 10% chance of success in Phase 3 clinical trials will still be valued at billions of dollars. That’s math—and markets are very adept at calculating this.

Lessons from Internet and Amazon

Let’s go back to the early days of e-commerce. In the early 2000s, early investors debated: How big will the market be? Will it only include electronics? Will women buy online? What about fresh food?

These questions seemed reasonable at the time. But the final answer was: all those people were completely wrong. E-commerce ended up selling everything to everyone worldwide.

Take Amazon as an example. From 1995 to 2019, over 22 years, Amazon almost had no profit. Every year, articles, critics, and skeptics claimed it was a Ponzi scheme, that the company would never make money.

But this weakness became its strength. Early investors didn’t sell because they believed in exponential growth.

Ethereum just turned 10 years old. Amazon took 22 years to turn a net profit. So why do we expect Ethereum or Solana to have profit margins like traditional companies right now?

Exponential Growth vs. Linear Growth

The fundamental difference lies here:

Wall Street is accustomed to linear growth. They use P/E as a criterion, suitable for slow-growing, stable businesses.

But Silicon Valley grew with exponential growth. When facing a technology that grows exponentially, no matter how big you think it can get, it’s always bigger than you expect.

If you rely on P/E for 22 years, you will be completely wrong—no matter how much you pay or when you buy. Any optimism is insufficient because that’s the nature of exponential growth.

Why Public Chains Still Have Value

Look from a broader perspective:

Financial assets crave freedom, openness, and connectivity.

Crypto technology transforms financial assets into digital formats, making sending a dollar or a share as simple as sending a PDF file. It enables everything to communicate with everything, operate 24/7, globalize, and connect continuously.

This model will definitely win.

Openness always wins. If the Internet taught me anything, it’s this. Those with vested interests will resist fiercely, governments will oppose strongly, but ultimately, they must compromise due to the ubiquity, innovation, and efficiency of this technology.

That’s what the Internet did to other industries. And blockchain will similarly dominate the finance and monetary sectors.

Conclusion: Time Will Tell

Ethereum is still very young. Solana is just beginning to capture market share. If you believe in exponential growth, and look from a broader perspective, everything is still cheap.

Every day, holders are outperforming sellers and skeptics. Large capital flows have learned from history that they shouldn’t easily abandon bets on big technologies.

The initial ideal story that made you buy $ETH or $SOL? Large capital flows also believe in that story—and have never stopped believing.