How ETH Could Overtake BTC and Reach $25k, Crypto Hedge Fund Explains


  • Su Zhu and Kyle Davies are the founders of the crypto asset hedge fund Three Arrows Capital.
  • They told the Bankless podcast about how they rebalanced to ether after being overweight bitcoin.
  • They also shared how ether could overtake bitcoin and go over $25,000 in the short- to medium-term.
  • See more stories on Insider’s business page.

Bitcoiners love to buy and hold so much that HODL — hold on for dear life — has effectively become an investing strategy for many crypto investors.

For the crypto asset hedge fund Three Arrows Capital though, being aware of short-term narratives while sticking to a long-term thesis has differentiated them from the increasingly competitive space. 

Founded in 2012, the Singapore-based fund has investments in everything from major cryptocurrencies such as bitcoin (BTC), ether (ETH), and Polkadot (DOT) to decentralized finance projects including Aave (AAVE), Synthetix (SNX), and KeeperDAO (ROOK).

In a recent appearance on the “Bankless” podcast, Three Arrows co-founders Su Zhu and Kyle Davies joined hosts Ryan Sean Adams and David Hoffman to discuss their bullish case for ether, how the cryptocurrency of the Ethereum network could overtake bitcoin, and how much the token could run up to in the short- to medium term.

Davies explains that his firm takes “a core long belief in crypto as a whole,” but they are also involved in the crypto basis trade and primary investments across a number of different projects.

“We have a reasonable pulse on what we think is going to be a big win and if the market gets a little overheated,” Davies said. “I think that’s why we’re not just blindly long a single particular asset for a long period of time. We are rather saying the book is long, but now how do you want to denominate, how do you want this composition to look like.”

Right now, the composition of Three Arrows’ book is “extremely overweight” ether, which recently surpassed a record high of $4,300 before falling back under $4,000 in a crypto sell-off induced by Elon Musk’s suspension of bitcoin for Tesla purchases.

Zhu explains that the current macro setup is “incredibly bearish for bitcoin dominance” because bitcoin has tripled from its previous all-time high of $20,000 and is running into a lot of resistance. 

“A lot of people are selling at the 3x all-time high,” he said. “And this is in a backdrop where ether has had probably its strongest tokenomics upgrades as a base money that it’s ever had in its history.”

He adds that across many retail on-ramps or crypto exchanges, particularly in the emerging market, ether (and in some cases dogecoin) is already outpacing bitcoin as people’s first buy. 

Additionally, after three waves of washouts, ether has become “a massive scarcity play” where people who have been overweight bitcoin and even participants in the Ethereum network do not hold enough ether. 

“That whole environment is just very conducive to ETH now and you’re kind of seeing that squeeze,” Zhu said. 

How ETH could overtake BTC

The hedge funders’ quick reaction to macro signals has paid off in the past.

Last November, Three Arrows Capital rotated heavily into bitcoin, which was trading at around $10,000 at the time. In January, the firm disclosed that it had taken a $1.24 billion stake in the Grayscale Bitcoin Trust (GBTC), according to The Block.

Interestingly, the direct listing of Coinbase in mid-April was the catalyst the led the fund to rebalance its allocation and overweight ether. “It takes a certain kind of narrative for bitcoin dominance to work, but part of that is not capital raises,” Davies said, “because anytime there’s a capital raise people have to make a decision.”

In the case of Coinbase, the largest US crypto exchange has marketed itself as the Amazon of crypto assets, which is not conducive to bitcoin’s dominance because it encourages the trading of multiple cryptocurrencies. In a 2018 Fortune profile, Coinbase CEO Brian Armstrong also said he personally owned more ether than bitcoin. 

For Zhu, a couple of factors have convinced him that ether could overtake (or “flippening” in crypto slang) bitcoin at some point in time. 

One influential factor is Raoul Pal, who earlier in the year predicted that ether could go to $20,000 in this cycle. The former Goldman Sachs executive and founder of Real Vision has said as more high-net-worth investors and institutions join the space, they will respect the size and utility of the Ethereum network. Investors such as pension funds are also more likely to invest in productive assets as opposed to a non-productive store of value (SOV), Zhu said. 

Another factor is the slowdown in institutional adoption of bitcoin. Since Microstrategy CEO Michael Saylor invested billions in bitcoin as part of its treasury asset, only a handful of other companies have followed suit. 

“Retail already likes ETH more than bitcoin because they resonate more with the internet of value as opposed to digital gold, and then institutions want to own what other people own,” Zhu said. “On top of that, they also like productive SOVs. And then thirdly, we’ve already had a nice bitcoin run and we already had sort of activation of supply above $60k.”

Ether over $25,000 

If everything powered by the Ethereum network is correctly priced into ether, then the cryptocurrency will go over $25,000 at least in the short- to medium-term, according to Zhu. 

He explains that the microstructure of the market has become much more efficient compared to the last cycle and crypto trading volumes are now trouncing those on stock exchanges. 

“In general, my experience in bull markets is that it goes higher than the most ardent believers believe it will go,” he said. “And that is actually the max pain because they sell it based on the dollar view, based on the fact that they can now buy a house, they can now buy five houses, they can now buy a boat, they can buy a bigger boat.”

Another factor driving his bullish thesis is that ether is “one of the few assets that are going from many to few.”

“The wealthier people are trying to figure out how do we get more of this for many people, whereas a lot of other coins is few people who own them and they want to sell them to many people,” he said. “This ‘many to few, few to many’ I think is very bullish because it shows the quality of the asset.”

Zhu’s co-founder Davies also thinks that $25,000 would be “a nice target,” but he adds two things need to take place in order for that price to happen. 

One is the Ethereum Improvement Proposal-1559 (EIP-1559), which is essentially an upgrade for Ethereum that will fix numerous issues on the network. Another important factor is for Ethereum to move from proof-of-work (PoW) to a consensus mechanism called proof-of-stake (PoS), which could bring about a number of improvements such as better energy efficiency and stronger immunity to centralization.





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