Prices of cryptocurrencies are currently, been driven by more by sentiment than by any fundamental or technical reasons. Fundamental news does give a sudden spurt here and there but its soothes of too. Till now the altcoins, especially Ethereum, was following the trend that Bitcoin was gathering clearly determining the sentiment on the crypto street.
But this run of BTC over past one month hasn’t been replicated by the Ethereum prices. Over past one-month BTC has risen close to 25 % whereas Ethereum is stagnated at only 3.3% gain. Does this signify Ethereum is slowly losing sheen in the eyes the eyes of investors or is it just short-term hurdles that are obstructing its path?
Ethereum does have some problems that are suppressing its price
Ethereum — it’s the second-biggest cryptocurrency in the world, sitting right next to Bitcoin. Being this large, Ether I has its own set of problems that are as large as itself and may take some time to get resolved. Some of the features that made Ethereum unique are currently causing it troubles.
- Network Congestion: – Ethereum’s ERC 20 and its network capabilities were incredible that so many coins were built and tested over it blockchain. But at this moment Ethereum network is incredibly congested thanks to a large number of coins transactions and new ICOs filling up the blockchain. ICOs are the lifeline to crypto projects and extremely popular to raise funding for blockchain projects — and Ethereum currently is the best platform for hosting ICOs. Not just new, but there are so many coins who even after ICO have stayed on the network and not migrated/or have their MainNet. Therefore, with all the blockchain traffic coming from ICOs and these coins, there isn’t much room for any other Ethereum transactions. Because of this congestion, traders have had a hard time getting their transactions through — running into incredibly long confirmation times. It’s interesting to note that Ethereum isn’t controlled by a single company, and decentralized applications (DApps) run on top of it. None of these apps have more than 5,000 daily active users(according to Forbes), yet the network is nearly at full capacity. Network congestion can cause the fees required to use the platform to skyrocket and that’s whats been happening as Gas prices have skyrocketed.
- Ethereum Has No Real-World Use Cases: Apart from ICO fundraising, Ethereum currently does not portray any promising use cases which have compelled many to question it’s the legitimacy and practicality. With every project to become mainstream, it has to make an aspect of life simpler, currently, Ethereum doesn’t seem to be providing any of this. Sure, enthusiasts have come up with all kinds of scenarios in which Ethereum could be used to replace or improve the current financial infrastructure. However, most of their theories seem like they would complicate things rather than simplify them.
- Scams: This reason is closely related to problems of ICOs. A widespread suspicion exists in the cryptocurrency community that many — if not most — ICOs are outright scams, with their organizers trying to get rich quick. Since Ethereum is the main platform for ICOs, you could argue that the cryptocurrency platform enables scammers — who in turn are really one of the only reasons Ethereum is so popular right now.
Ethereum problems are keeping investors away
Some of the leading crypto hedge fund investors to don’t seem happy with Ethereum as a project. Tetras Capital, a crypto hedge fund that launched last summer and is known for in-depth analyses of cryptocurrency prices and San Francisco family office, Hidden Hand Capital which has $100 million in crypto assets under management are not at all impressed by Ethereum.
According to a Forbes report, both investors are concerned that its $48 billion market cap isn’t justified, largely because the network can only handle about 15 transactions per second which very less compared to VISA which can handle 24,000 transactions per second
According to Timothy Young who is shorting Ether through his family office, Hidden Hand Capital was quoted saying “Ethereum has an incredible talent pool of developers,”
“In the long term, I think they’ll solve a lot of scaling challenges. But in the short term, there’s a disconnect between the price and underlying technology.”
The same was echoed by Alex Sunnarborg, founding partner of Tetras Capital, who too is shorting Ether. He was quoted saying that
“Just because something is a good idea doesn’t mean it’s a good investment.”
Tetras which recently came out with a report thinks the ICO boom has driven ether’s price up since many ICOs accepted only ether from interested investors. Those ICOs are at risk of a regulatory crackdown, “which will dry up most of ETH demand,” the report predicts.
On the other hand, Sunnarborg trusts ether would need to become a better store-of-value asset to live up to its valuation. He sees bitcoin as the more likely winner as the top store-of-value crypto asset, due to
“crucial characteristics, including security, political and architectural centralization, monetary supply, regulation, and liquidity,” he says.
There are defiantly some problems with Ethereum and events ICO’s and Airdrops exercises like FCoin exchange are making it worst for. These problems seem to be short-term but definitely, need some work from Ethereum to mitigate the risk that is being risen because of these events to its blockchain and to its image.
Wil Ether be able to manage these risks and come out back to its growth trajectory? Do let us know your views on the same.
Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Nilesh Maurya has been associated for past 8 years as an Investment Banker with Omega Capital, a bespoke Investment Banking outfit having offices in Mumbai, New York, Singapore, and Dubai. He has been a regular contributor to business publications such as Business India and Market Express and has been a mentor to many start-up companies. Follow him on Twitter at @KoinKing1 or connect with me on linkedin.