In the world of digital currencies, ethereum (ETH) has long occupied the space just behind bitcoin in terms of market cap. However, many ETH proponents believe that it has, in some ways, been the more revolutionary of the two leading cryptocurrencies. After all, the ethereum platform created smart contracts, enabling decentralized applications (DApps) and initial coin offerings (ICOs) to spread around the world.
On the strength of these innovations, the price of ETH has risen dramatically from its early levels. Although it declined from its highs of around $1,400, in line with other digital currencies, ETH still trades for well above $400. Now, though, a New York-based firm called Tetras Capital has revealed that it is shorting ethereum.
According to a report by Global Coin Report, one of Tetras’ primary concerns with ETH is scalability, which is a significant problem for cryptocurrencies in general, and one of the primary reasons for the hard fork phenomenon that has spawned offshoots to popular coins like bitcoin. The report suggests that Tetras believes the ethereum platform has not yet managed to fully address important issues of scalability which tend to become most problematic when new DApps are launched and network congestion peaks.
Decentralization and Technical Issues
Tetras has gone so far as to create a “thesis” documenting its reasons for why it has chosen to short ethereum. In the 41-page document, the firm points to persistent issues with decentralization and technical problems as other reason for betting against ETH. ICOs are yet another reason. With the threat of impending regulation looming, the ICO space could change very quickly depending upon governments’ actions.
Simply put, Tetras believes that analysts predicting a continued rise in the price of ETH are wrong. They are not the only ones, either; according to the report, Hidden Hand Capital, a family office in San Francisco, is doing the same. Timothy Young, Hidden Hand’s manager, believes that in the long term “they’ll solve a lot of scaling challenges. But in the short term, there’s a disconnect between the price and underlying technology. Just because something is a good idea doesn’t mean it’s a good investment,” he says.
Investing in cryptocurrencies and Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.