Nothing shows this as well as Grayscale’s Ethereum Trust, a regulated and publicly-tradable investment vehicle that is backed by ETH. A share of the trust, which corresponds with 0.094 ETH, reached a value of $239.50 last week on secondary markets. This means that investors in the shares were buying exposure to the cryptocurrency at a 1,000% premium.
Yet fund managers in the cryptocurrency space recently came out with a report debunking the Ethereum investment case.
ETHEREUM IS NOT A VIABLE INSTITUTIONAL INVESTMENT
With Bitcoin underperforming altcoins, institutional investors have begun to eye opportunities beyond the market leader. The best bet beside from BTC, they say, is Ethereum, which is one of the most liquid cryptocurrencies.
$2 trillion asset manager Fidelity Investments revealed last year that it is looking into adding Ethereum to its trading and custody services. And regulators at the U.S. CFTC, which presides over crypto derivatives markets, expects fully regulated ETH futures to gain popularity.
According to crypto fund manager Exponential Investments, though, Ethereum is not a viable institutional investment.
Exponential Investments’ Steven McClurg and Leah Wald released an article on the matter titled “Ether And Bitcoin Are Not The Same.”
The case they laid out was extensive, but their assertion that “Ether is a risk-on asset; not an investment” boiled down to the following few points:
- The lack of a known-in-advance or consistent monetary policy in Ethereum makes it unable to become a digital store of value.
- ETH’s use case as a form of “gas” means it cannot appreciate too high or else users will be unable to use the underlying network.
- Ethereum investors have a different mentality than Bitcoin investors, limiting upside.
- Due to the way the blockchain is structured, Ethereum has potential security issues as it continues to gain adoption: “As more users join, the cost of gas increases, the network clogs, there are potential security issues, which decreases the value of the service, leading to poor user experience, and therefore users drop off and move to other blockchains.”
NOT THE ONLY SKEPTIC
Wald and McClurg aren’t the only fund managers in the cryptocurrency space to have been skeptical of Ethereum’s investment potential.
As reported by Bitcoinist previously, Kelvin Koh explained that he is more bullish on Bitcoin than Ethereum at the moment.
The partner of The Spartan Group, formerly of Goldman Sachs, attributed this thought to the fact that there is “considerable uncertainty” regarding the Ethereum 2.0 upgrade. There is specifically uncertainty about the economic implications and potential technical shortcomings that could threaten ETH’s inevitability.
There’s also criticism from Arca’s Jeff Dorman, who explained that the fact ETH traded so closely in tandem with Bitcoin on the rumor that Satoshi may be back indicates that “most digital assets are not necessary to own.”