New York-based Tetras Capital is managing a $30 million crypto hedge fund and believes shorting Ethereum is logical based on its current overvalued price. The Ethereum network has come under scrutiny the past few weeks, following rogue Decentralized Applications (DApps) wreaking havoc with the gas prices and transaction confirmation times. In a thesis posted to its blog page, Tetras outlines its reasoning behind why it feels that Ethereum is overpriced and is set for a huge price drop.
Ethereum Needs to Grow Up
According to Tetras, Ethereum needs to improve its transaction speed and overcome certain political issues. It does acknowledge the strengths of Ethereum, such as its high volume of transactions per day and popular DApp library, but these don’t warrant its current high 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,” Tetras revealed in its newly published thesis.
Crypto Investors Overconfidence
Tetras also highlights that the price of Ethereum is kept afloat by investor excitement in the network, stemming from the wide range of DApps and Vitalik Buterin’s often passionate interviews. However, the Ethereum ecosystem is filled with initial coin offerings (ICOs) and with a handful of governments beginning to regulate the ICO space, these could soon become few and far between. As current ICOs migrate to their own mainnets, the Ethereum network could run the risk of becoming an empty shell. South Korea banned ICOs back in September 2017, but is looking to reverse the ban in favor of more regulated ICOs.
The Ethereum network is relying heavily on its ecosystem of developers. if something were to happen to this ecosystem – such as tighter regulations on ICOs – then the network could begin to recede. These are the reasons why Tetras believes that shorting Ethereum is a wise move in the short term – with it being pretty tough to argue against this way of thinking.
