My current opinion is that ETH is undervalued right now on longer, perhaps one to several years, time frame.
Reflecting On The ETH Bubble:
ETH’s run was propelled by the ICO craze and investors used ETH as the main asset to invest in ICOs. During that time, many crypto funds used ETH as their main liquid asset and looked at the ROI performance of their investments in BTC or ETH terms, not USD. While early investors to the ICO craze profited, the last leg of the ICO cycle was one spurred by greed, emotions of jealousy and publicly visible success stories flaunting their returns. There was also naivety in the excess of boldness and confidence that investors had in the newly ideated token utility model, without best practices or proven examples as to how adoption caused value to accrue into a cryptocurrency. The last signs of ICO disaster were funds and retail investors trying to squeeze into a few very hyped and large private sale deals. What ended up happening, in my observation, was a lot of these projects chose to increase their fundraising hard caps or offered additional rounds to fill demand, and over-eager investors, pulled by fomo and armed with absolutely no fear of losing money, had bid up a lot of these large cap projects to raise at way too high valuations. I still think crypto SAFT private markets are way overvalued today, and I think a correction of these $50M+ raises on secondary retail markets (i.e. exchanges) is likely to happen next.
ETH hit an all-time-high of $1,402 on in Jan 13 2018, which was 643 days ago. Today, ETH is still down 88% from its all-time-high. We’ve had significant widespread losses for investors that held the way down and there is still bleeding among investors. I feel there is still the lingering depression of widespread losses, extremely reluctance to invest more in ETH, high levels of fear and strong feelings of risk-aversion. It feels the past few months investors rather have flocked to BTC, praising its narrative as a “safe-havven asset,” and the rise in price has reflected this optimism. ETH feels similar to 2013 after BTC collapsed when Mt Gox was hacked and Silk Road also was seized. Back then, BTC hit a high of $1,149 on Nov 29 2013, when there were 12M BTC in circulation, and continued to decline for over a year. During that time, there was also an intense hatred to invest in BTC, intense skepticism and hardly any optimism, negative press, and an extreme lack of eagerness to invest in BTC.
What really spurred my optimism on the 2013 bear cycle officially ending in cryptocurrencies was the enthusiasm around ICOs that retail investors could participate in. It was at that moment that I strongly felt that BTC was cycling from a dead market to one driven by excess optimism, unwise risk tolerance and greed once again. I also feel like a similar sentiment pivot point around ETH driven by optimism and adoption is not too far away, if not happening already.
DeFi, DAOs, and more:
While it’s impossible to predict future events, I think it’s likely that some great product will be born out of the ETH ecosystem that gets industry-wide adoption as well consensus for investors to be optimistic again. The skeptical investor might argue ETH was good for nothing but ICOs, but ETH already has promising applications that are right in front of us in plain sight today:
• Decentralized stablecoins. In my opinion, DAI likely serves a larger market for easy transfer of money as well as a way to protect wealth in countries with hyperinflation. As the UX around accessing yield-producing DeFi services such as Compound, such as smart wallets like Argent, gets better, I wouldn’t be surprised if adoption around DAI accelerates. DAI helps anyone secure their assets anywhere in the world, providing better banking for those with limited and poor options due to local region and corrupt governments. There are over 165.5k address that hold $DAI today, up 17.9% from 30 days ago in September.
• Grant giving DAOs: MolochDAO and MetacartelDAO. The idea of having a decentralized autonomous organization to codify the interactions, rules, and money decisions inside an open or delegated group of members is fundamentally really unique. DAOs can help codify how a community interacts, money flows, reputation, votes and more. Perfect for grant-giving communities, but I expect more types communities to benefit from DAOs.
• ERC-1337: Ethereum subscription token standard. Payments over the web in DAI or other stablecoins has a direct benefit to vendors as they cut out credit card charging fees, as well as prevention against charge backs and offering customer anonymity.
• ERC-721: Ethereum non-fungible token standard. NFTs are a way to guarantee authenticity and create scarcity with applications, and I feel there’s potential for them to find traction in games, communities, memberships and more. An example here is Gods Unchained.
In addition, I’m hopeful for the possibility of revenue generating business to be in built in the area of collateralized debt and swaps inside the ETH DeFi ecosystem, such as:
• InstaDapp. Takes fees at the smart contract level for creating an easy UI for making a CDP.
• Compound. Takes % of the interest they pay out.
• Argent. Easy to use smart wallet that lets you earn interest via DeFi services.
Because crypto assets are scarce in supply and the sentiment trends tend to move in excess, I don’t see it being impossible to have ETH quickly accelerate to higher prices at some point in the future. I’m optimistic and eager to see how staking in ETH 2.0 changes the supply and demand dynamics of Ethereum.
When many investors would also argue that there are other protocols that can unseat ETH, my main questions for evaluating competitors is:
• How decentralized is that competitor compared to ETH, and if it’s a lot more centralized why does it add value to applications?
• What are the features and functions of the competitor’s protocol that add direct value to applications that ETH cannot do?
It feels like ETH’s network effect around DeFi is only increasing, while other protocols need to focus on finding their own use case niche, rather than spending all of their time and resources marketing how they’re technologically superior.
ETH’s price action from now until sharding and POS is launched will be an interesting one to watch. I think hovering around .02 ETH/BTC price could be the around the range of a long-term bottom on a longer-term time scale.
Not investment advice, please do not make a trade based on what is written (ever) in this newsletter, it’s just my opinion and observations.
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