On Thursday (June 11), a pair of crypto hedge fund managers at Exponential Investments — a division of Exponential Group, which was founded by James Wallace and James Tonn — against Ethereum as a potential store of value, claiming that Ethereum lacks the scarcity of Bitcoin and is too volatile as a speculative asset.
According to a weekly investor letter (titled “Ether And Bitcoin Are Not The Same”) written by Steven McClurg (Chief Investment Officer) and Leah Wald (Head of Research & Portfolio Manager), Ethereum constitutes a “risk-on asset” and should not be considered an investment.
The report compares Ethereum to “digital tungsten,” arguing that it fails as a store of value asset.
The authors claim that Ethereum lacks stability and is too volatile as a speculative instrument for investors to rely upon against future purchasing power:
“How can you ‘store value’ in a speculative instrument? An investment cannot be a store of value if it lacks stability. It must be stable enough against future purchasing power that when retrieved in the future it can still be proved predictably useful.
“Ethereum does not have one of the greatest value propositions of Bitcoin: predictable scarcity. Instead, the antithesis is the reality.
“The monetary policy behind Ether issuance is extremely unstable and due to its centralization, there remains an ability to inflate the money supply, such as was seen in the DAO hack in 2016 and diffusing the difficulty bomb, thereby debunking any belief in its ability to be seen as digital gold.
“Given market participants do not deem Ether as a suitable monetary asset, then it is more akin to a simple commodity used only for smart contract computation.
“Therefore, there is no logical reason for an individual or institution to store wealth in it but only to have sufficient amounts for their needs, similar to AWS credits.”