Why This Investor Says Ethereum is Positioned to Become a Store of Value
It isn’t a secret that when crypto investors mention a “digital store of value,” they are decidedly referring to Bitcoin (BTC). But, as emission (supply output) rate of Ethereum (Ether/ETH) has dwindled over its nearly four years in existence, commentators have begun to evaluate the cryptocurrency’s status.
Although some are sure that Ether is gas through and through, giving users the ability to issue transactions, execute smart contract commands, and issue digital tokens, many have begun to fit the asset into different categories. And somehow, some way, one investor managed to fit a round peg into a square hole.
Ethereum Is “Positioned” To Be A Store Of Value
At Ethereum’s current annual inflation rate of 4.4%, well above the U.S. Federal Reserve’s ~2% target, many argue that it would be hard to call it anything like a digital iteration of gold. In a recent series of tweets, however, investor James Spediacci has politely begged to differ. The trader, who has purportedly been cited in the New York Times, laid out his thoughts on the subject matter in a 15-part thread, picking apart the nitty-gritty of this non-issue.
Spediacci noted that while the value proposition of Ethereum has plummeted over the past year, primarily a result of the unwinding of the token sale bubble, which pushed everyone and their mom to purchase ETH en-masse, it will eventually get back on its feet. He explains that as Proof of Stake (PoS) is activated over the incumbent mining system, inflation will “go down to near-zero in two years,” giving Ether a lower stock-to-flow (above ‘ground’ supply to annual issuance) than most government-issued currencies.
At the same time, decentralized finance applications, which puts financial processes on Ethereum’s chain, will continue to collateralize their ecosystem by locking up Ether, furthering curbing circulating supply figures.
Spediacci writes that as applications like Compound have consumed 10,000 Ether worth of collateral every day, “the natural demand for the cryptocurrency will soon pass natural supply,” making Ethereum purportedly the first digital asset to have use-induced deflation.
He adds that once staking goes live, Ethereum will be granted the “six characteristics of money”: durability, portability, acceptability, divisibility, uniformity, and limited supply.
Spediacci did admit that economic abstraction poses as a risk to Ether’s money status, as the asset would be devalued as the gas of Ethereum’s ecosystem. But, he seemed confident that is entirely possible to see ETH become a value store, despite such an occurrence being seen to be not on the table.
Bitcoin Exists. Does Crypto Need Another Store of Value?
While Spediacci is sure that Ethereum’s SoV classification will come with time and development, especially with the growth of DeFi applications like MakerDAO, does this market really need another gold-esque cryptocurrency?
Many Bitcoin maximalists have given issued a “no” in response to this inquiry. The fact of the matter is that as is stands, BTC is seen as the most viable contender to replace gold’s long-standing hegemony, especially in the 21st century’s digital age, not Ether, a Bitcoin fork, or a newfangled cryptocurrency promising the sun and the moon.
Brendan Blumer, the chief executive of Block.one, the blockchain startup that is heads development of the EOS blockchain, believes that Bitcoin will make a move on gold’s de-facto go-to store of value status over the next two decades.
The Winklevoss Twins, the purported Facebook co-founders behind the Gemini exchange, have made a similar argument in recent years. Twin Cameron, breaking down the “Bitcoin is a digital form of gold” argument, remarked that if you boil it down, the digital asset is (or can be) better at fungibility, scarcity, portability, and divisible than the precious metal itself. In their eyes, the only thing that gold has only BTC is a “3,000-year headstart.”
All these pundits see Bitcoin (and BTC only) as the only digital asset that will ever hold status as a usable store of value. In fact, Mike Novogratz of Galaxy Digital once stated that if the cryptocurrency market was the periodic table, BTC would be the only one with an atomic number of 79, much like how gold is gold.
But, according to the stakeholder’s sentiment and those that corroborated his statements, Ether will inevitability become a value store, as long as the poplar blockchain moves ahead with its lofty ambitions to launch 2.0 (Serenity).
Related Reading: Where’s Ethereum 2.0 At? Vitalik Buterin Gives A Much-Needed Update