Wall Street major banks model Ethereum for the first time: predict year-end price at $4,300

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Citi predicts Ethereum’s year-end target price at $4,300, but value capture from L2s remains murky.

On September 15, according to Zhuifeng Trading Desk, Citi Bank released its latest research report, setting a year-end target price of $4,300 for Ethereum (ETH), lower than the current spot price.

The report uses the same prediction model previously applied to Bitcoin, comprehensively considering three major factors: fundamental value, potential capital inflows, and the macroeconomic environment. It also provides a range of $6,400 in a bull market scenario and $2,200 in a bear market scenario:

Fundamental Value: Citi’s model shows that Ethereum’s current price has surpassed the level that its network activity can support, possibly driven by recent ETF inflows and overexcitement about use cases such as tokenization, posing a risk of near-term overvaluation.Capital Inflow Potential: Although the price impact from inflows into Ethereum ETFs (every $1 billion inflow can boost the price by 6%) is twice that of Bitcoin, Citi expects the total net flows to be much smaller than Bitcoin, as new investors will still prefer Bitcoin first.Macroeconomic Environment: Citi points out that in this forecast, the macro environment has minimal impact on Ethereum. However, once a recession hits, macro factors will become the key driver pushing Ethereum lower.

Value Anchors and L2 Challenges: 30% Value Transmission Rate is the Key Assumption

Citi believes that, unlike Bitcoin's positioning as "digital gold," Ethereum's value is more closely tied to its network activity, namely its use as a smart contract platform.

However, the report pointedly notes that recent activity in the Ethereum ecosystem has mostly occurred on Layer 2 (L2) networks atop Ethereum itself, and the boom in L2s has not directly or fully translated into Ethereum's value.

(Ethereum ecosystem activity is mainly concentrated on L2 networks)

Due to transaction cost and throughput limitations, applications and users have migrated to L2s, but the market is uncertain about how much value L2s can actually return to Ethereum’s mainnet. Last year’s Cancun (Dencun) upgrade to the Ethereum network lowered fees paid by L2s to mainnet, promoting L2 adoption but also deepening concerns about Ethereum's value capture ability.

Citi’s model assumes a 30% value transmission rate from L2 activities to Ethereum mainnet. Even under this assumption, Ethereum’s current price is still higher than what the combined activity of L1 and L2 would justify.

This premium, Citi attributes to recent market buying pressure and the “booming expectations” around future use cases such as tokenization and stablecoins.

Stronger but Smaller ETF Capital Flows: Significant Leverage Effect, but Total Volume is Less Than Bitcoin

Capital inflows are another key factor affecting Ethereum's price.

The report notes that heavy buying by digital asset treasury companies and ETF capital inflows have been major drivers behind Ethereum's recent outperformance.

Citi emphasizes that Ethereum's capital flow leverage effect is significant. Every $1 billion of ETF inflow per week can drive Ethereum’s price up by about 6%, while the same amount moves Bitcoin’s price by only 3%.

However, Citi expects the volume of capital flowing into Ethereum to be smaller than into Bitcoin. The logic is that since Ethereum’s market cap is about 25% that of Bitcoin, this may be the short-term upper limit for new capital allocations, as new investors tend to start with the most recognized Bitcoin.

Macroeconomic Factors Have Limited Impact in Bull Market Scenario

The macroeconomic environment, especially the stock market and the U.S. dollar, are traditional forces influencing crypto prices.

Like Bitcoin, Ethereum’s price is positively correlated with the stock market, and negatively correlated with the U.S. dollar.

However, in Citi’s base case scenario, macro factors are not decisive. The report notes that although Citi’s U.S. equities team projects limited upside for stocks by year-end, with an S&P 500 target of 6,600, this—based on Ethereum’s historical beta—only provides a minor 35 basis point upward drive for its price prediction.

But investors must take note: in a bear market scenario, macro factors will be crucial. The report emphasizes that for the $2,200 bear market target, the main driver would be a macroeconomic downturn triggered by a recession, especially a sharp decline in U.S. stocks.

Citi Predicts $4,300 Year-End Target

Citi ultimately constructed its price prediction model by integrating the above three core factors—network activity, capital flows, and macro environment:

Base Case ($4,300): Assuming moderate capital inflows before year-end, and market excitement about Ethereum’s network use cases is maintained, supporting a price slightly below current levels.Bull Case ($6,400): Assumes a significant increase in network activity (possibly driven by the explosion of stablecoins or tokenization applications), with continued strong demand from ETFs and treasury companies.Bear Case ($2,200): Mainly driven by recessionary macro factors, especially a stock market downturn, causing a reversal in market sentiment and the price to fall back to a level only supported by current network activity.

In short, Citi’s report provides investors with a clear analytical framework. It affirms Ethereum’s value as an application platform, but also candidly points out its core weakness in capturing L2 value.

In the short term, the price faces the risk of being inflated by market sentiment. In the long run, whether Ethereum can fulfill its “World Computer” promise hinges on its ability to effectively capture the value generated by the flourishing L2 ecosystem.

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The above content is from Zhuifeng Trading Desk.

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