Institutional investors are seemingly bearish on the broader use case of Ethereum, despite its support on thousands of cryptocurrencies on its open-source platform and the world’s second-largest digital currency by market cap.
The Big Ether Short
According to Forbes, cryptocurrency hedge funds and family offices believe Ethereum (ETH) will plummet further in 2018, even though the platform token already falling roughly 40% from its all-time high in December 2017.
Among the others is one Hidden Hand Capital, a San Francisco-based family office founded by tech entrepreneur Timothy Young. According to reports, $100 million worth of cryptocurrencies and has a “short” position in the ether, is being managed by the office.
New York-based Tetras Capital is quite prominent in cryptocurrency circles for its coin analyses, and recently, price outlooks published a 41-page report expounding its ether short. While the six-person team manages a $30 million fund, founding partner Alex Sunnarborg is aggressively betting across ether and investing heavily in bitcoin.
Ethereum’s inflated $48 billion market was further explained by the entrepreneurs, which, according to them, does little justice to the network’s capacity of handling 15 transactions per second. In contrast, payments processor VISA is valued at $314 billion and processes 24,000 transactions per second.
Scaling Issues Adding to Investor’s Pessimism
Scalability issues have accordantly plagued Ethereum and network congestion after the launch of applications on its platform, remarkably the December 2017 case of CryptoKitties, a tradable digital cat game that resulted to skyrocketing fees and hour-long delays for processing transactions on the network.
Tetras stated in its report that applications costs in the Ethereum network were “1 million” times more expensive compared to Amazon Web Services, which for companies, considering decentralized server systems, is a significant disadvantage.
Managing partner at Multicoin Capital, Kyle Samani, echoes the bearish sentiment and is “seriously considering” shorting the digital currency. Yet, Multicoin has opened short positions on Litecoin and Ripple and is cautious about adding to its exposure.
On the other hand, CoinShares chief strategy officer Meltem Demirors shared her “neutral” outlook for the cryptocurrency:
“We are nowhere near a bear market yet, [and] demand for Ethereum-based tokens and applications is largely speculative. In the absence of more Enterprise Ethereum Alliance announcements in 2018, I won’t look to add more exposure.”
The issues affecting their platform are known by Ethereum developers and are steadily working towards improved mechanisms. From this perspective, Casper and Plasma are two awaited technical updates that aim to speed up the network and prevent over congestion.
However, Tetras think such substantial improvements remain a far-fetched feature. The team cites “optimistic estimates” to specify the protocol’s Layer-2 arrangements capable of supporting, or testing, scaling solutions are “roughly two years” off.
Young adds to Tetras’ outlook and emphasized the community’s limited interest in the two technical updates, mentioning the low number of views on their YouTube channels.
Meanwhile, Tetras is apparently bullish on the controversial EOS platform. Its report presumes the platform’s $4 billion ICO can be spent for recruiting experienced talent, aside from “big bag” investors protecting their investments by maintaining price action.