I probably get flamed for saying this but I will still say it...
So if you bought $ETH Spot ETFs at launch, you're now down around 25%.
And I believe that it is still fundamentally OVERVALUED.
My contrarian thoughts, so hear me out👇
1) $ETH derives its value from two key factors:
- scarcity, similar to Bitcoin
- potential for future returns.
However, the post-Merge Ethereum network has introduced some concerning developments that call these value drivers into question.
2) First, the Merge has made $ETH deflationary. But more importantly, it has demonstrated the Ethereum Foundation's (EF) ability to actively manage the token's supply.
This undermines the scarcity narrative, as the EF has shown a willingness to intervene in Ethereum's monetary policy.
Even if the current monetary system is considered more favorable (which I doubt), it can still change in the future, and the Ethereum Foundation has shown a willingness to adapt. Therefore, ETH remains scarce until it isn’t.
3) Compounding this issue, the recent Dencun upgrade has led to a dramatic drop in Ethereum's transaction fees - over 50% in Q2 2022 alone. While increased activity on Layer 2 solutions may help offset some of this revenue decline, it's unclear whether this can fully make up for the reduction in mainnet fees.
4) Ethereum in a precarious position. High fees on the L1 network drove many projects to alternative chains, forcing the EF to lower fees significantly, especially on Layer 2 solutions.
But this fee reduction directly caps the value of the Ether token, as its worth is primarily a function of those fees.
For $ETH to see an increased value, activity on the chain and Layer 2 solutions must level up. However, achieving this with very low fees, which are necessary for scaling, presents a significant challenge. Essentially, ETH’s value is likely to remain lower because both low value and scalability are interconnected prerequisites.
5) Just because Bitcoin ETFs attracted billions in capital in a few weeks, doesn’t mean the same will happen for Ethereum ETFs. Traditional finance investors take their time to adapt to new investment products, so I don’t think Ethereum will see the same immediate success as Bitcoin ETFs.
Bitcoin is viewed as digital gold, while Ethereum is seen as a decentralized world computer. These are very different narratives, and TradFi investors will need time to wrap their heads around Ethereum’s unique value proposition.
However, this perspective that I have presented differs from market pricing theory. This is the case where the market might price ETH higher due to external factors such as ETFs or speculative future potential. However, in the long run, I am expecting for the market price to align more closely with its intrinsic value.
at another level i want to think about incentives. The incentive of the team is not really on token price which cuts both ways.
Long term its great as it can help build moats, but short term it will defintely hurt.
Agreed, we somehow forgot that Ethereum is primarily a platform, not a store of value or a share in a business.