The CEO of digital currency investment firm BKCM is evaluating the prospects for Ethereum (ETH) just weeks before the project initiates a major network upgrade.
In a new episode of Fast Money, CNBC contributor Brian Kelly mentions for the first time how Ethereum investors may not earn as large a payday for profitable trades as expected due to ETH’s inflation mechanism.
“I think it’s probably more ‘selling the news’, which is perhaps not that intuitive because in cryptocurrencies you generally want to buy the news. But everyone bought Ethereum because they are entering this merger and now you will get a so called yield.
Just so you know, it’s not really a yield. You’re just catching up on your inflation premiums, so it’s kind of offsetting inflation in the currency. It’s not really a return. “
Kelly predicts that investor enthusiasm ahead of ETH’s mid-September shift from a proof-of-work (PoW) consensus mechanism to a proof-of-stake (PoS) consensus mechanism will inevitably lead to a sell-off, but warns that there is also the possibility of confusion or total failure which could negatively affect the price of Ethereum and the project itself.
“There is probably greater potential for a sell-the-news event entering the merger.
You may also have a glitch. Not only [that]but there are many questions about what apps will do if Ethereum splits again.
You may have a chain fork and now not one, but two or three different Ethereum. So what does your DApp (decentralized application) do and what does it play on?
I think the Ethereum merger is riskier than what people give credit for. “
Looking at the economy more broadly, the analyst discusses the correlation of cryptocurrencies with the tech equity sector, highlighting the fundamental differences between Bitcoin (BTC) and Ethereum.
“It was very high. The correlation between Bitcoin and Nasdaq is around 60%. Ethereum’s correlation with Nasdaq is around 70% for the past 30 consecutive days. Cryptocurrencies actually behave like a triple Q ETF with 2x leverage [exchange traded fund].
I think there is some nuance here, as Bitcoin itself is not a tech stock. It is definitely an alternative currency. It’s digital gold. You need it when your country destroys its currency, as many governments do today.
Ethereum, on the other hand, can somehow be considered a tech stock because it will disrupt much of what tech stocks are doing today.
To the extent that it takes daily active users away from places like Twitter, Facebook and Google, I think there is something to be said about Ethereum being a tech stock. “
At the time of writing, ETH is priced at $ 1,578 and BTC is trading at $ 19,983.
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