Case For Investing Long in ETH

Foreword: I first wrote this before Brexit was approved in the last week of June 2016, and subsequently shared this with friends. Now, I’m making it public.

This also gives me a good opportunity to reflect on how far I’ve come from a nascent understanding of ethereum to a slightly better understanding of ethereum. Boy, did I come far, and man, do I have a long way to go, still.

Background

Here’s a requisite background reading on bitcoin and ether. Here’s a recommended read on the validity of cryptocurrencies. Please review these prior to proceeding. Otherwise, the rest of this post/memo will have minimal value.

Case for Investment:

1. Brexit positively impacts investments in ether due to weakness in British Sterling and flight to alternate currencies.

a. Supported by drop in British Sterling to lowest level in history of currency (since 1985) and increase in price of gold since Brexit.

2. Alternative currencies serve as safe haven during increased market volatility.

3. Wealthy Chinese families have been moving money into alternative currencies, including bitcoin, in order to escape forthcoming Yuan devaluation since at least late 2015. This flight will increase, particularly to ether and other cryptocurrencies.

4. Blockchain, the underlying tech for the currency, is Web 3.0, the Internet’s future. For background, web 1.0 was static websites, web 2.0 was social media, and web 3.0 is blockchain.

5. I’ve also done thorough technical analyses of ether. Technical analyses, by its nature, is more suited for short-term investing (e.g. day trading). In any case, tweet at me if you’d like to see it.

6. Bitcoin recently halved its hash rate, which leads to a decrease in long term supply of the cryptocurrency. In the short term, there will be a slight dip of ~15% before a longterm bull run. Ethereum will benefit during this period as it will be viewed as a less volatile option, which will lead to increased investment, which will increase [perceived] legitimacy in part due to affirmative signaling. There is the risk of a “hold-up problem,” but that’s for another time.

7. Ethereum is more technologically advanced than Bitcoin. The latter is a currency (and storage of value) while the former is a platform for which developers can build apps. There are also developers who have begun developing for Ethereum who did not develop for Bitcoin.

8. The price of Ethereum will rise towards the middle of next year after Devcon2 in Shanghai form September 19–24, 2016. The price after DevCon1 was 10x within 2 months.

9. But don’t take my word for it:

• See what Fred Wilson, Partner at Union Square Ventures, has to say about Ether.
• See what Fred Ehrsam, CoFounder of Coinbase has to say about Ether.

Case against investment:

1. Speculative nature of (crypto)currencies (macro-economic risk).

2. DAO hack exposed vulnerability. Executive response is crucial; I believe management will respond positively and instill confidence for the long-term.

Since I wrote this, Mr. Buterin & Ethereum’s executive team’s response to hard fork the DAO vulnerability was overwhelmingly positive, reinstating belief in the executive team and technology.

Proposed investment strategy:

1. Plain vanilla option

o $1000 upfront cost, with option to buy later.

o Disclosure: I have purchased options.

2. Long Ether

o Current Price: $14.46

§ I have existing long positions, and I’ve repeatedly bought on dips.

3. Short Bitcoin in the short term, and Long Bitcoin in the long term

o Current Price: $652.80

§ I am personally following this strategy, in part as a hedge.

Personally, I wish there were an exchange I could use to at least delta hedge my positions, but synthetic hedges will have to do for now.

Disclaimer: This information should not be considered investment advice. Past performance is no guarantee of future results.