A crypto hedge fund managing an estimated $30 million in assets believes shorting Ethereum is “an ideal strategy for hedging out overall crypto market risk.”
New York-based Tetras Capital says the price of Ethereum is much higher than it should be based on the current state of its technology.
“We believe that ETH’s current price is still significantly overvalued; still significantly decoupled from the Ethereum network’s current and near-term technological state. Our research has led us to believe that the market and technology is still far too immature to justify current 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.”
According to Tetras, Ethereum will have to improve its transaction speed and overcome political challenges to grow.
The hedge fund acknowledges the strengths of Ethereum, including its robust list of decentralized apps and high number of transactions per day, but says those attributes don’t justify the current price.
“On the surface, some of the Ethereum ecosystem’s key performance indicators (KPIs) have been promising. As of July 2018, ETH’s market cap was roughly $45 billion. Ethereum currently supports thousands of ERC20 tokens (35 of which are worth greater than $100 million) and over 1,500 decentralized application (DApp) projects. The Ethereum network currently processes roughly 750k transactions per day.
The network is seeing some genuine demand, but we believe that this demand is far from sufficient to justify ETH’s price. When there is an expectation that a crypto-asset can achieve/exceed a trillion dollar market cap, the asset must become some reserve store of value (SoV). We believe ETH lacks the crucial characteristics required for a dominant SoV, 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.”
Tetras blames irrational exuberance in the market for the current price of ETH, and says its technology will have to become more efficient and cheaper to outperform its competitors.
The company says it will be closely watching the strain on the network, competition from other blockchains and regulation toward ICOs in the coming months, which it believes will be crucial and revealing for the future of the number two cryptocurrency by market cap.