Conventional wisdom conflates all crypto assets in the same category. It is a mistake and is leading to significant misallocation of capital. To start with, the investment case for Bitcoin (“BTC”) is inherently different from all other crypto assets. On a basic level BTC is a put option on the fiat money system. As participants lose confidence in the system, BTC’s adoption as a store of value grows and its investment thesis is automatically fulfilled by virtue of its mathematically capped supply. That is not the case with other crypto assets as they are typically call options on the success of a specific decentralised platform. The investment case for Ethereum (“ETH”) at the current valuation looks especially wobbly. As the first and by far more popular smart contract platform, ETH has been attracting hundreds of billions of capital with some of the top decentralised apps built on its ecosystem. Yet ETH’s success may also be its demise as the platform has become slow and very expensive. That is why ETH’s competitors such as SOL, AVAX and others are gaining market share by the day and outperforming (see chart). ETH can’t survive in its current form and that is why a major tech overhaul is planned to go live sometime in 2023 (“ETH 2.0”). As often is the case with tech, a frictionless deployment is far from obvious. Akin to a surgery with multiple organ transplants, a lot can go wrong. A less than perfect deployment of ETH 2.0 could have systemic repercussions on the ecosystem and lead, for example, to chain forks or other scenarios that could significantly impact capital values. Most investors, even more sophisticated ones, seem to be oblivious to the issue and promote concentrated bets on ETH rather than taking a VC-investing approach on a basket of smart contract platforms. They reference BTC’s ascent as a proxy, failing to understand the profound differences. There is little question that the digital asset space will deliver transformational returns. It is also all but sure a substantial amount of capital will be destroyed in the process (think: “dotcom bubble”). While it is time to Swerve and consider alternatives to legacy asset classes, blind faith is never a viable investment strategy. Investors are best served by a process that combines early capital deployment with thoughtful research and risk management. 

Disclosure: Hold all assets mentioned. Not investment advice. Do your own research

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