It’s fair to say that despite a somewhat negative start to 2018, fresh hope surrounding cryptocurrency has been bolstered by a recent bitcoin price rally.
Despite a recent drop of four percent over the past 24 hours due to the US Securities and Exchange Commission denying the Winklevoss bitcoin ETF, the overall picture over the past few weeks has been overwhelmingly positive.
However, while most onlookers have been watching the movement of bitcoin during recent market trends, something that hasn’t been quite so prominent is the movement surrounding Ethereum.
A crypto hedge fund that came to prominence last year, Tetras Capital is a New York-based fund that currently has around USD 30 million in assets under its management, and it has recently published a 41-page report on why it has decided to short ETH.
Making its initial move in May of this year, Tetras started shorting ether when the price of the cryptocurrency ranged between $572 and $659.
At the time of writing ETH is sitting at $463.
Disparity in ETH prices
Alongside its ether short, the investment company is also enjoying the current bitcoin price rally, and founding partner Alex Sunnarborg admits that the ETH short and its investment in bitcoin are its two high-conviction positions at present.
In the report published by Tetras, they claim a number of factors have led them to make the decision to short ETH, including “a vast disparity between current speculative ETH prices and the reality of Ethereum today.”
They believe that the imminent launch of some significant dApps will collide with Ethereum’s network strain, highlighting the issues that Ethereum has with both scaling and centralization.
It’s suggested that despite currently having no dApps with more than 5,000 daily active users, block space is virtually at capacity.
ICO crackdown “imminent”
The report also cites ETH fees surpassing BTC, and a belief that ETH fees will rise even more once we see the long-awaited release of dApps such as Funfair, Augur, and Gnosis.
“An application call can be roughly 1 million times as expensive on Ethereum as compared to a centralized service like AWS [Amazon Web Services],” Tetras claimed in its report.
There is also a belief that an ICO regulatory crackdown is imminent, which will “dry up most of ETH demand and trigger market reflexivity.”
“This will lead to selling pressure as ICO investors and organizers exit ETH, furthered by decreasing ETH demand from ICOs.”
Founder of Socialcast and Hidden Hand Capital Timothy Young commented that despite Ethereum having “an incredible talent pool of developers, there’s a disconnect between the price and underlying technology.”
What would it take to exit its short?
A point that is frequently raised during such discussions is the number of transactions that Ethereum can handle per second (around 15) in comparison to the likes of Visa, who can process 24,000 transactions per second.
Tetras founding partner Alex Sunnarborg was asked what it would take for his company to change its mind and exit its short, to which he replied –
“If Vitalik and Vlad came out tomorrow and said, ‘In our sleep we developed the perfect sharding solution,’ we might change our view.”
Sunnarborg doesn’t see the SEC’s ruling that Ethereum isn’t a security as a real positive either, as he firmly believes that the ICOs being launched on top of Ethereum are still very much at risk of being deemed securities.
So while the bitcoin price rally has been dented a bit over the past 24 hours, it’s not facing as tough a future as Ethereum seems to be, especially if certain players with skin in the game are to be believed.
Lover of all things crypto, blockchain and AI, professional tech scribe & part of the editorial team at Crypto Disrupt.