Even though cryptocurrency markets continued to fall since the beginning of the year, Eethereum’s ether mostly escaped the double-digit single-day losses seen by other cryptocurrencies. Its smart contract capabilities drew good attention, and the ICO craze helped it sidestep the scathing regulatory and other critique reserved for bitcoin. (Also see: What Is Ether? Is it similar to Ethereum?)
However, the latest cryptocurrency drop has brought out the ether bearish. They predict that the price of the cryptocurrency will finally fall to zero.
A Speculative Price Increase
As its detractors have pointed out, ether has two flaws.
The first is related to the price rise. According to BitMex co-founder Arthur Hayes, ether is a “shxxcoin.” According to Hayes, the tale began in 2017 as the number of crypto hedge funds increased. “Outsized gains on holdings of ether and token projects provided the seed funding for many of the revered crypto hedge funds,” Hayes said in his newsletter.
It’s worth remembering that initial coin offerings, the vast majority of which were based on Eethereum’s blockchain, surged in 2017. According to Autonomous Research, ICOs generated $228 million in May 2017. That figure had climbed to $2.2 billion by the end of the year. Last year, ether generated gains of 600 percent. Cryptocurrency and ICO investors swiftly transformed their profits into crypto hedge funds for authorized investors. However, Hayes claims that bitcoin hedge fund managers and investors lack the same level of discipline as their equities counterparts. They have approached bitcoin markets with the attitude of a venture capitalist.
Paper values in this perspective are dependent on the thoughts and opinions of a small number of individuals rather than the larger market. “Because their investments are illiquid, they (VC investors) may advertise to fantasy, demonstrate spectacular returns on paper, and get rewarded.” The next round of financing, which may easily go up if you persuade your lads to join in with you, is the sole secondary market confirmation of their investments, he adds.
According to Hayes, the latest bottom in ether’s price is the result of investors selling the currency after understanding it has exceeded its top. He believes ether might reach a two-digit value in the future. The cryptocurrency is now selling at $211.32 per pop and has a market capitalization of $21.5 billion as of this writing.
Ether’s (Non) Utility
The creator of MIT’s cryptocurrency project has also criticized ether. In a Techcrunch essay, Jeremy Rubin criticizes ether’s value inside the Ethereum ecosystem and claims that its demise is unavoidable. He claims that Ethereum does not need ether to power network transactions. (The coin serves as gas for Ethereum’s blockchain transactions.) Simply said, each transaction on Ethereum’s blockchain costs a specific amount of ether. If not enough ether is saved for the transaction, it may not be carried out at all.)
There are many issues with utilizing ether on Ethereum’s blockchain. Due to the volatility of cryptocurrency markets and the economics of smart contracts, businesses, for example, have difficulty determining an exchange rate for their token’s worth in relation to ether. Setting the value at parity may result in hefty gas expenses in the latter scenario, while a depreciated value may render their internal token useless. Ethereum’s blockchain, according to Rubin, may also run without ether. Startups may avoid utilizing ether by offering token incentives to attract investors and users, or by using the tokens as gas for transactions on the Ethereum network. According to Rubin, the exchange rate for tokens in the latter situation might be established using a weighing method on Ethereum’s blockchain.
Are The Arguments True?
Several of these opponents’ points may be applicable to cryptocurrency markets as a whole. For example, throughout the previous year, the values of various cryptocurrencies have been driven by speculation rather than the fundamentals of their platforms. Ether, in fact, is one of the few cryptocurrencies that has been deployed in a real-world setting, thanks to smart contracts and cryptokitties. (Also see: Cryptokitties Are Still A Thing.) (Here’s why.) Consider Tron, whose value skyrocketed as a result of a test platform.
However, the use of a cryptocurrency is limited by its network effects. Coins, like fiat currency, are useless unless they have velocity and are employed for practical purposes. It is here that ether seems to be on shaky foundation. If Rubin’s case for ether’s non-utility is correct, the cryptocurrency’s value might fall to zero. However, there are many who disagree.
“In essence, I believe there is a natural basic amount of reservation demand for a unit of exchange that makes a robust blockchain tick.” “It’s difficult not to assume that this kind of demand would rise if and when Ethereum transitions to a proof-of-stake consensus mechanism,” says Michael Casey, senior adviser for blockchain research at the MIT Digital Currency Initiative.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site.
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