What’s Up with Ethereum?

2018 is a tough year to hold cryptocurrencies. Most are down more than 80% from the all-time highs of late 2017. It reminds me of the 2014 bear market that I bought into where Bitcoin dropped almost 80% after I bought my first one. If you still believe in the cryptocurrency you bought, then hold on. HODL on that is.....

But what's up with Ethereum in particular? (Disclaimer: I don't own any ETH and have no position on it one way or another)

Ethereum is down from $1404 on January 13 down to $286 today or 79%. Here's the YTD chart (green is the USD price):

Ethereum's Killer App

Bitcoin's blockchain supports Bitcoin only, which is great but those looking to work with blockchain other than Bitcoin have to look elsewhere. Ethereum is built as a blockchain for the creation of other applications. Ethereum holds a lot of hope for those of us that want to see more practical, useful and popular blockchain applications built. So far, 2 apps stand out: the ERC-20 token and the ERC-721 token. The issuance of tokens is used both as a fundraising tool and as a way to digitize assets from non-liquid assets like real estate to collectibles.

The 2 Popular Ethereum Tokens

If you've heard of cryptokitties, then you have heard of the ERC-721 token. The key difference with this token is that it is not fungible, meaning each one is unique. This works well with collectibles and potentially with tokenizing other assets. Just like with Kabbage Patch kids and other collectibles fads, Cryptokitties has its own marketplace for the sale and trade of these non-fungible tokens.

The ERC-20 token is by far the most common token of the killer app: the Initial Coin Offering (ICO). An ICO is when a company issues their own token, like prediction market Augur issuing their REP token. Not only are there many, many ICOs but all have to hold some ETH to use as gas, or payment to use the Ethereum blockchain.

This was thought to be a way to distribute ETH and encourage long-term holders in the market since they need ETH just like most foreign banks need to hold some US Dollars to access our banking system. Ethereum World News is reporting that large-scale ICO selling into this bear market is dragging the price even lower.

ICO Outlook by Insiders

The ICO issuers are selling to cover costs and, according to Biswas Das of Bloomwater Capital, due to their collective lack of treasury management and cash management expertise. While ICOs have raised lots of money, Blockchain Capital's Spencer Bogart states that investors are disillusioned with them putting downward pressure on Ethereum, the marketplace where they happen. Co-creator Vitalik Buterin calls ICOs 'old and boring'. Vitalik further states that he believes Ethereum will be better off (and the cryptocurrency markets entirely) when they move away from proof of work to proof of stake, a move that's coming soon to Ethereum.

Vitalik too Important to Ethereum

A concern many people have about Ethereum, myself included, is how important Vitalik is to its development and outcome. While Ethereum is not centralized and has good developer interest, Vitalik is incredibly important to Ethereum's success and he confirms in the Forbes piece that Google did reach out in n attempt to hire him based on some of his Github work.

Ask Yourself These Questions About ETH

So when it comes to Ethereum in particular, some things you need to think about are:

  • How is the ICO market developing and will it continue?
  • Will other fundraising methods develop aside from the ERC-20 token?
  • Do ICO issuers contribute more to the upside in rallies and more to the downside in bear markets?
  • Is Vitalik too important to Ethereum?

I don't know the answers to these questions and no one else does either. These are the questions I would ask myself to see if I would hold onto the ETH I have or buy more of it.

 

 

 

 

 

 

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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