The billionaire investor Michael Steinhardt required of his interns the following framework for pitching an idea:
He should be able to tell me, in two minutes, four things: (1) the idea; (2) the consensus view; (3) his variant perception; and (4) a trigger event.
For example:
- Buy Ether below $200, Long Ethereum through 2020
- Bitcoin will always dominate the crypto market, competitors have better scaling, and Ethereum is only used for silly cat games.
- Ethereum has developed a sentiment best characterized as frustrated and pessimistic due development delays and suffered slow-downs on its current protocol. However, research has progressed and Vitalik has stated that the theory is complete and efforts are focused on implementation. Therefore, Ethereum is widely underestimated and the future impact of proof of stake and Dapps is neither realized nor understood by the market; PoS and Sharding deployment into late 2019 will allow Ethereum to scale decentralized applications for millions of users.
- The most probable trigger event is the deployment of working Casper PoS protocols to test-nets and the resulting statistics that show a massive leap in capability in terms of scaling and transaction capacity. Speculative Bitcoin price action should not be confused with tangible improvements to Ethereum’s fundamental protocol.
In addition to this summary, there are many more reasons to be optimistic. The market seems to be accumulating at the $200 mark (edit: jk). Ether is still highly correlated with Bitcoin’s price movement and there hasn’t been any great news for Ethereum to cause a significant divergence. The update to Ethereum’s protocol called Constantinople scheduled for October was delayed until early 2019. Constantinople will reduce the Ether issuance 33%, from 3 to 2 Ether per block. Simple supply and demand suggest that this reduction should increase the value of Ether in the near term.
Another factor that could boost Ether’s value is the institutionalization of cryptocurrencies. Hedge funds and trading desks have been pushing for authorization on a Bitcoin ETF relentlessly. Soon, the SEC will rule on 9 Bitcoin ETF proposals. Even if they do not get approved, we can be sure the proposers will learn more about what the SEC is looking for and continue to adapt their proposals. The possibility of Bitcoin ETF approval in the next year seems likely as Fidelity, JP Morgan, and other players continue to develop support cryptocurrency assets. An ETF approval is the only good news on the horizon for Bitcoin and is expected to cause a major boost to the cryptocurrency market. While other coins would benefit from a Bitcoin ETF, until a pivot away from Bitcoin occurs the cryptocurrency market is highly susceptible to Bitcoin price movements in any direction.
As I’ve been saying for the last two years (has it really been that long?), the arrival of Casper Proof-of-Stake is what may cause a real shift away from Bitcoin. Conveniently, as I write this, Vitalik has released a few statements regarding the expected performance of Proof-of-Stake at the recent developer conference in Prague. Slides from his presentation read, “Pure PoS Consensus,” and “~1000x higher scalability”. Most notably, Vitalik announced the abandonment of so-called “Shasper,” a combination of Casper Proof-of-Stake and Sharding. This means pure “Casper” Proof-of-Stake will be released significantly earlier than the more complicated Shasper protocol. Instead of 2020 or later, Vitalik seems to believe Casper may arrive by late 2019.
It appears the cryptocurrency market is truly behind Ethereum and the initial developer momentum will sustain Ethereum until Proof-of-Stake. The counterfactual makes this clear: if the market didn’t believe in Ethereum it would have flipped and supported EOS or other competitors. Instead, the support for Ethereum remains relatively strong even through the delays in the production of Casper PoS. In conclusion, there is little to worry about in terms of competition.
In my view, we are in an awkward stage of cryptocurrency. The hype has died down and it seems like retail and commercial investors alike are starting to ask themselves, “why are we here?” The focus has gone away from investing in innovation to trading on volatility because the end-user has sparsely seen any material advances in the space. Until a “layer one” solution — without sacrificing decentralization — provides a 1000x increase in network transaction capacity and rates, there is no “killer dApp”, no acceptable user experience, and no mass adoption of cryptocurrencies. Casper is that solution. Coming soon (TM), 2019.
The recent self-offs are no doubt a healthy correction and will effectively purge many of the delusional ICO projects and speculative assets with no substance. The previous bull market that drove Bitcoin to $20k provided an accelerated education to thousands of retail investors that would not have heard of cryptocurrency otherwise. There are those who are claiming the death of crypto is imminent, but it seems more likely that crypto is here to stay. The need for digital currency is simply a natural progression. The age of swiping a credit card is as impermanent as the rotary telephone. When I walked through the airport today, I wondered why it is necessary to carry physical identification cards. Blockchain technology— decentralized, public blockchain technology — will transform the way we interact with the world.
In summary, Ethereum is still in a strong position and is at a significant discount at sub $200 levels when considering future upgrades to the protocol. Reasons to be bullish include:
- Near-term issuance reduction
- The rollout of financial products: A possible Bitcoin ETF approval, Ether Futures
- Casper Proof-of-Stake around Q4 2019 (give or take 6 months)
*Do your own research, this is not investment advice, and I am biased and own Ether.