With the next crypto bull run on the horizon, investors have speculated that Ethereum will be one of this cycle’s best investments.
As reported by Bitcoinist previously, Chris Burniske, a partner at Placeholder Capital, said that he thinks Ethereum could rally to $7,500 in the coming years:
“If BTC goes > $50,000 in the next cycle, and ETHBTC returns to its former ATH, then expect to see ETH > $7,500. To the mainstream ETH will be the new kid on the block — expect a frenzy to go with that realization,” Burniske explained, showing how a 3,000% Ethereum rally in the coming years may be feasible.
Yet there is a potential “Achilles’ heel” to the ETH investment case that could limit upside, especially if gains are measured against that of other top cryptocurrencies.
This Factor Could Prevent Ethereum From Growing Rapidly
According to cryptocurrency investor and commentator Humboldt Capital, the Ethereum investment case’s “biggest Achilles’ heel” is the fact that you don’t need to invest in ETH to benefit from the growth in on-chain applications.
That’s to say, one can capture more upside by investing in, say, MakerDAO’s MKR token than ETH itself.
“An investment thesis for ETH centered on continued growth of DeFi, is like advocating to invest in the S&P 500 vs just the Tech sector. So far, the biggest Achilles’ heel for ETH is the fact you don’t need to invest in the protocol layer, you can just invest in the best apps.”
An investment thesis for $ETH centered on continued growth of DeFi, is like advocating to invest in the S&P 500 vs just the Tech sector. So far, the biggest achilles heel for $ETH is the fact you don’t need to invest in the protocol layer, you can just invest in the best apps.
— Humboldt Capital (@HumboldtCap) June 14, 2020
DeFi Itself Is Likely to Slow Down
Not only may Ethereum not strongly benefit from growth in DeFi, but the adoption of decentralized finance may peter out.
As reported by Bitcoinist previously, Multicoin Capital’s Kyle Samani sees the growth of this segment of the Ethereum ecosystem “plateauing” in the near to medium term. Referencing ETH’s slow block times (compared to the internet, which traditional finance is based on) and the potential for high transaction costs, he explained:
“You just can’t build global scale trading systems for lots of users on POW chains. It just doesn’t work. High latency –> all kinds of negative second order effects. So I think for now we are near a plateau for DeFi – measured in ETH terms (not USD) – until the core latency problems are solved.”
Samani’s comment came in spite of the fact that there’s been a recent eruption in DeFi adoption.
DTC Capital’s Spencer Noon observed that certain decentralized finance applications, like MakerDAO and Synthetix, have seen usage strongly increase in recent weeks.
Not the Only Reason Why Investing in Ethereum Isn’t a Good Idea: Fund Managers
Steven McClurg and Leah Wald, partners of Exponential Investments, explained that Ethereum’s lack of consistent monetary policy, the mentality of its investors, and the way the which the blockchain is structured makes ETH a poor investment.
Ether is digital tungsten to BTC’s gold. @stevenmcclurg and my latest piece deep dive into why institutional investors should be wary of investing in $ETH. https://t.co/1KgGzEgKzO @BeExponential
— Leah Wald (@LeahWald) June 11, 2020
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The Ethereum Investment Case Has This Unexpected Achilles’ Heel