According to Forbes, many major cryptocurrency investors are betting against Ethereum. While the entire cryptocurrency industry has experienced a bearish market over the last several months, Ether, Ethereum’s token, has fallen by 36 percent in 2018 alone.
Ethereum Lacks Crucial Characteristics to be a Store of Value
Tetras Capital, a New York-based cryptocurrency hedge fund with $30 million in assets under management, has decided to short Ether and bet against the Ethereum currency. In fact, the company has been shorting Ether since May 2018, when Ether was valued at around $572 to $659.
Ether is currently worth approximately $464.67 as of July 27, 2018.
The hedge fund recently released a 41-page report explaining their reasons for shorting Ether. As a company known for their in-depth cryptocurrency price analysis, the summary of the paper received a lot of praise from the cryptocurrency community, gaining over 1,000 claps on Medium.
Tetras Capital argued that despite uncertainty around regulation and value capture, Ethereum and its currency Ether have received “absurdly” high valuations. These valuations even rose to greater heights than traditional equity investments. Tetras Capital believes that Ether’s overly high valuation is a direct result of pure speculation. The hedge fund noted in the Medium blog that Ethereum’s technology is still too immature to justify its high price valuations.
“This nascent asset class has taken off due to speculative narratives, and we believe that the current marketplace is not sophisticated enough to properly evaluate risks or general economic concerns,” said Tetras Capital.
The hedge fund noted that on the surface, Ethereum’s key performance indicators (KPIs) are quite strong. In July 2018, their market capitalization was $45 billion. There are over 1,500 decentralized applications using their network, and they support many ERC20 tokens—35 of which have a valuation of over $100 million. The network also undergoes 750,000 transactions every day.
While there is demand, Tetras Capital noted that the demand is significantly less than its current valuation.
“We believe ETH lacks the crucial characteristics required for a dominant store of value, and we see a low probability of ETH taking the reign from the current crypto-asset leader, BTC – let alone from incumbent globally dominant assets like the USD and Gold,” said Tetras Capital.
Ethereum’s $48 Billion Market Capitalization is Not Justified
Tetras Capital is not the only organization shorting Ethereum. According to Forbes, Timothy Young, a former entrepreneur, is also betting against Ethereum through his family office, Hidden Hand Capital, which has over $100 million in management. Young mentioned that, while Ethereum is a global platform, the network suffers from extreme scalability problems. Ethereum can handle only 15 transactions per second whereas Visa handles 24,000 transactions.
“Ethereum has an incredible talent pool of developers,” said Young. “In the long term, I think they’ll solve a lot of scaling challenges. But in the short term, there’s a disconnect between the price and underlying technology.”
In Tetras Capital’s blog, the hedge fund made similar arguments. The company believes that in order to become a proper decentralized application platform, Ethereum needs to overcome their scalability problems. While Ethereum has a strong brand name, the next few months will have a big impact in shaping the platform’s future.
Ethereum will soon face stiff competition from other Dapp platforms, with EOS, Dfinity, and Tezos all launching their own mainnets in 2018. Network strain, competition from other decentralized applications, and more stringent regulation towards initial coin offerings will, therefore, test the hype and value of the Ethereum network and their Ether tokens.
Ethereum has the Largest Community of Developers, Technologies, and Tools
Jake Brukham, the founder of cryptocurrency asset manager CoinFund, however, disagreed with Young and Tetras Capital. As someone who believes in Ethereum’s long-term value, he has been holding his Ether tokens since July 2015.
Brukham noted that, while Ethereum still has a long way to go, “a ton of improvements are coming to market this year. As a blockchain technology, Ethereum still remains the largest ecosystem of technologies, tools, and developers.”
A great example of recent improvements to the Ethereum network is the upcoming Casper update. These technical updates should ensure faster transaction times and increased scalability.
Yet, despite these new improvements, Kyle Samani, the managing partner at Multicoin capital, unlike Brukham or Tetras Capital, has adopted a neutral stance towards Ethereum. Meltem Demirors, the chief strategy officer of CoinShares is also on the fence with Ethereum.
“We are nowhere near a bear market yet, said Demirors. “In the absence of more Enterprise Ethereum Alliance announcements in 2018, I won’t look to add more exposure.”
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