What Is Driving Ethereum Price Up So High? Pure Speculation

What Is Driving Ethereum Price Up So High? Pure Speculation
Make-someones-day / Pixabay

Thoughts from Jamie Finn, President & Co-Founder of Securitize, regarding the surge in the price of Ethereum. Founded in 2017, Securitize is one of the largest players in the security token space with more than 150 customers and 50,000 investors using its issuance and compliance platform for digital securities.

Get The Full Series in PDF

Get the entire 10-part series on Charlie Munger in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues.

Q3 2020 hedge fund letters, conferences and more

Jamie has some strong views, which can be found below in a Q&A format.

Crypto Hedge Fund Three Arrows Blows Up, Others Could Follow

CryptoA few years ago, crypto hedge funds were all the rage. As cryptocurrencies rose in value, hundreds of hedge funds specializing in digital assets launched to try and capitalize on investor demand. Some of these funds recorded double-digit gains in 2020 and 2021 as cryptocurrencies surged in value. However, this year, cryptocurrencies have been under Read More

A recent tweet from Jamie on the topic which garnered notable engagement.

1. What's driving the price of Ethereum up so high?

Pure speculation.

1a. Is it more speculative investment, or is Ethereum actually getting more usage?

It is getting more usage but with this speculation you will have many developers search for another chain since its getting too expensive to process a transaction. Right now it costs $17.00 to process a transaction which is untenable for most people unless you are using it for large transactions. For example if you want to get generate yield you would need to spend $17 to get into the “deal” and then you are basically starting out at -$17  which is fine if you are deploying $100,000 but most people are only deploying $100-$1000 which means the yield is negative for a long time.  As an example if you were to invest 1 ETH a UNISWAP pool you would paying $75 in fees right now into.

2. What of Ethereum's scalability issues? Is that a matter of concern at this point?

The current issues are more related to costs as opposed to scalability - that said if the network scaled further perhaps the costs would drop further but that remains to be seen.

3. What will the Ethereum network look like in a year in terms of usage in the best-case scenario?

In our best case we would like to see the price of Ethereum drop to $200-$300 per coin and get more capacity into the network so that developers and users can use the network in a way where the fees don’t exceed the benefits.

4. What is the overarching problem with the status quo?

Fee based networks such as Ethereum have the wrong economic model when you compare it to traditional economic models -- as things currently get more expensive to use the more they are used -- which is the opposite of what would be expected with an economy of scale where transactions get cheaper as things scale up.  The inventive model on ETH is broken and needs to evolve.

Updated on

Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
Previous article Hackers Stole Over $2.7 Billion In The Last Decade
Next article Investors bet on more stimulus from the Biden administration

No posts to display