Source: Adobe / Myst
While the price of Ethereum (ETH) could rise in the next year, the network remains an unfinished product that is in the process of transforming its base layer without a concrete model that could speak of speculation from outside, according to the well-known generalist investor and Bitcoin (BTC)) Investment App Swan Bitcoin Advisor, Lyn Alden.
Alden provided an analysis of the Ethereum Protocol from an investor’s perspective, as she said, stating that she was a BTC investor and did not invest in ETH. Among a number of points she raised, Alden touched on Ethereum’s monetary policy – specifically, its changing nature.
Alden said she had no “fundamental problem” with the lack of a hard emission rate for ETH on EIP 1559, a highly anticipated proposal to improve Ethereum that aims to bring an automatic token burning mechanism to every transaction and an improved fee market , arguing that “it is a much better monetary policy than Ethereum so far and is well thought out.” The problem, however, is that “given how many times Ethereum’s monetary policy has already changed,” she sees no reason to assume that EIP 1559 is permanent and that “Ethereum developers change monetary policy as often as the Federal Reserve does and for similar reasons.”
Compared to Bitcoin, Alden continues, whose base layer has not been in effective beta mode for a long time and is fully functional. Ethereum is still in the works on its base layer and is still changing the underlying core mechanics. Changes are still being made to “remove current restrictions that are jeopardizing the functionality of the network” even though they “were priced well in the first 5 years of its life”.
That said, Ethereum could iterate until it finds a sustainable place for itself, or be weighed down by its own complexity and lack of widespread economic use, she argued. So, “maybe in another 5 years, if Ethereum 2.0 has been up and running for a while, with monetary policy consistent throughout, it can be seen as a largely completed project like Bitcoin. Until then, it’s experimental.”
So Alden stated to herself that she was “not involved in this debate much” – as an investor, she wanted to “invest in things that I consider completed projects that have good risk / reward traits. At this point, I contain the bitcoin, but not Ethereum. “
While the 80/20 or 90/10 or 100/0 in terms of BTC / ETH ratio “makes sense to them all”, Alden’s approach is “100/0 in favor of Bitcoin,” and I have no compelling reason for one Change seen that unless I just want to speculate. “To reconsider this, Ethereum 2.0 would have to move out of alpha evolution, make monetary policy consistent, and be more widely used in areas outside of token speculation. It concluded that
“While I don’t think it’s crazy to have a small position in Ethereum, I don’t have a clear way of modeling it either, other than just speculation, as it’s an unfinished product on the base layer with a more circular use case so far everything about trading, liquidity provision and gamification of altcoins. “
In addition, according to Bitcoin, “Bitcoin is more likely to attract a libertarian and Austrian group of economists; big fans of healthy money, self-sovereignty, etc.” while “Ethereum is attracting more of a gamer culture and experimenting more.”
More complexity, more surprises
The competition at Ethereum includes smaller smart contract block chains like Cardano (ADA), Tron (TRX), and Polkadot (DOT), which together are smaller than the capitalization of Ethereum. However, Alden wrote, “Their gap with Ethereum isn’t quite as big as some of the money brands compared to Bitcoin, so they’re worth seeing.” This is a contest for Ethereum “at a time when it is in a transformation” to Ethereum 2.0, having recently launched Phase 0.
Speaking of ETH 2.0, which is converting the network from a proof-of-work to a proof-of-stake security model and makes attacking Ethereum more expensive, but it takes years to prove its resistance to attacks. “The more complex something is, the more surprises there can be.”
In addition, the expansion of the system throughput via the ETH 2.0 raises questions about the incentive structure for the pricing of Ethereum tokens. Running validators is a good incentive to keep ETH at ETH 2.0 long term, Alden said. Since the use of ETH 2.0 dapps (decentralized app) could increase and drive up the price, it could also stagnate, while high fees could make dapps “less attractive” and low fees could reduce the demand for ETH tokens.
“Overall,” Alden concluded, “I don’t see a clear price increase model for Ethereum tokens as I see Bitcoin.”
Still, monitoring Ethereum is important to a wide variety of investors, including stock and bitcoin investors. Alden suggested that the latter could learn from the competitor’s successes and failures and apply them to their own ecosystem development.
Commentators on Alden’s play, however, have expressed some conflicting opinions. While some people agreed with Alden’s analysis, some added additional points like distribution, others shared refutations. For example, bankless Ryan Sean Adams argued that Ethereum seeks a minimum necessary emission while “the Fed has inflation, unemployment and economic goals. [Defintely] not the same.”
Security is the Fed’s mandate.
– Ryan Sean Adams – @ rsa.eth (@RyanSAdams) Jan 17, 2021
The discussion of Alden’s text was also held on Reddit, with users arguing that Bitcoin is still in development too, but not nearly as much as Ethereum, and that this lack of development is “going to bite BTC in the ass,” like “CrowdGoesWildWoooo” argued. Bitcoin is better from an investment point of view – at this moment, but not like this, this user suggested. Others, presumably from the ETH camps, also argued that ETH was better positioned in the long term compared to BTC.
At the time of writing (12:24 UTC), ETH is trading at USD 1,231. It’s up 2% in a day, 21% in a week, and 90% in a month. Over the past year, it’s up 657%. Meanwhile, BTC is changing hands at $ 36,516 after rising 4% in one day and 11% in a week. BTC also didn’t do as well as ETH over the past month and year, rising 60% and 327%, respectively.
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