Ethereum, the second-largest cryptocurrency platform in the world, has seen its currency plummet 36% this year and it appears that some big investors think it can fall even further, so they are betting against it.
For example, Tetras capital, a crypto hedge fund based in New York, shorted ETH starting back in May so that it could buy coins back at a lower price. The firm has published a report explaining its actions saying: “We believe that ETH’s current price is still significantly overvalued; still significantly decoupled from the Ethereum network’s current and near-term technological state. Our research has led us to believe that the market and technology is still far too immature to justify current valuations.”
Tetras’ strategy was/is: “Shorting ETH is an ideal strategy for hedging out overall crypto market risk because:
ETH has minimal “breaking news risk” that can move the price unexpectedly
ETH is the asset and Ethereum is the ecosystem we understand best behind Bitcoin
ETH has a mature enough market to facilitate reasonable borrow terms.”
Timothy Young of Hidden Hand Capital is another person shorting ETH, as is Neural Capital. Both are based in the San Francisco area.
Investors like Tetras and Hidden Hand are concerned that ethereum’s $48 billion market cap isn’t justified, largely because the network can only handle about 15 transactions per second. They point to Visa, which can handle 24,000 transactions per second, saying just because something is a good idea, doesn’t make it a good investment.
Of course, not everyone agrees with shorting ETH. Jake Brukhman at CoinFund. At his firm ETH has historically made up between 20% and 42% of his firm’s first fund and he said, “As a blockchain technology, Ethereum still remains the largest ecosystem of technologies, tools and developers.”
What will it take for fund managers o stop shorting ETH — it seems that the answer lies in scaling, an issue that the ethereum team is still working on.