What to Know:
- •Szabo claims Ethereum's primary use cases remain "largely external" to ETH's market value, creating a weak link between network utility and token price that contrasts sharply with Bitcoin's store-of-value design.
- •Watkins argues that ETH's rally from $1,400 to $5,000 since April stemmed from narrative shifts rather than fundamental changes, with institutional perception moving from "dying platform" to stablecoin infrastructure.
- •The debate highlights how Layer-1 valuations operate in a void without agreed methodologies, leaving markets to anchor on relative value comparisons and capital flows rather than measurable cash-flow metrics.
The Structural Disconnect Between Use and Value
Szabo, who returned to X in late September 2025 after a five-year absence, framed his argument in stark terms. "A fundamental problem with ETH valuation is that ethereum's primary uses cases are largely external to ETH's market value," he wrote in response to Watkins' market analysis.
The cryptographer outlined a scenario where outcomes diverge sharply from intuition. Ethereum "can be very useful," its applications "can garner great revenue," and yet "ETH can still be low price — or vice versa — there is little link between them," he argued.
Szabo drew a sharp contrast with Bitcoin, whose "main use case is as a store of value, which is strongly linked to its price." He added that "Bitcoin's basic design is far more suited to this use case, so ETH can't just mimic it, it has to rely on other use cases poorly linked to its price." For Szabo, the architecture itself creates the problem.
Utility on Ethereum does not reliably convert into value capture by the token, while Bitcoin's purpose and price remain intertwined by design.
Narratives Fill the Valuation Vacuum
Watkins approached the same market from the opposite direction, arguing that investors waste energy constructing elaborate valuation models when price action and storytelling dictate outcomes. "Time and again I see people overthink L1 valuations," he wrote, framing Ethereum's recent strength as a narrative shift rather than a fundamental breakthrough.
His explanation for the price movement was direct.
"The only difference between $1400 ETH and $5000 ETH was Bitmine," Watkins wrote.
In April, he said, "Ethereum was a dying platform." Now "it's the stablecoin chain and the next 'Bitcoin-like' opportunity for institutions."
The researcher was not endorsing these narratives as accurate, but identifying them as market‑moving forces. "The point here isn't about whether any of this is justified," he wrote. "The point is that the absence of agreed upon valuation methodologies creates a void that only narratives and relative frameworks can fill."
Watkins listed competing theories without claiming any as truth. "Is the ETH bull case that it becomes a take rate on global GDP? What about it becoming 'programmable Bitcoin' which intrinsically can't be valued? How about both? The truth is no one knows."
That uncertainty pushes markets toward simple comparisons, he argued. "Well BTC is $2 trillion. So who's to say ETH shouldn't be 50% of that? It offers a superset of Bitcoin's functionality right? ETH is $500B. Why shouldn't SOL be 100% or more of that?"
He called these exercises "goofy" but useful for traders navigating real conditions. His conclusion was practical rather than theoretical. "There's an enormous competitive advantage for assets that have penetrated mainstream consciousness and persisted over time," he wrote. "It's a game of flows and narratives until the party stops."
The ratio of long to short sentences reflects how the debate itself unfolds in layers. Markets may continue pricing ETH through narratives and relative value while the question Szabo poses remains unresolved. Can Ethereum's design ever create a durable link between network utility and token value?
For now, the split in perspectives reveals where the asset sits in its cycle. Perceptions of purpose, rather than measurable fundamentals, set the price.
Understanding Key Terms
Layer-1 blockchains refer to base-layer networks like Bitcoin, Ethereum and Solana that process transactions independently without relying on another chain. Market capitalization represents the total value of all tokens in circulation, calculated by multiplying current price by supply. Store of value describes an asset that maintains purchasing power over time, a primary use case for Bitcoin. Stablecoins are cryptocurrencies pegged to traditional assets like the U.S. dollar, and Ethereum hosts the majority of stablecoin transactions.
Take rate refers to the percentage a platform captures from economic activity occurring on it. Relative value means comparing an asset's price to similar assets rather than modeling intrinsic worth.
Closing Thoughts
The Szabo‑Watkins exchange exposes the fault line in Ethereum valuation. One side points to structural limitations in how utility translates to price, while the other describes markets that ignore such mechanics in favor of flows and positioning. Hopefully, Vitalik can step in and explain why there are both wrong. At press time, ETH traded at $4,701.92.