Beaten-down cryptocurrency ether is about to 'rally strongly,' says Wall Street's Tom Lee
- Ether has lost 70 percent of its value this year but Wall Street’s biggest crypto bull says it’s “about to rally strongly.”
- Fundstrat's Tom Lee says the past four out of four times ether underperformed other cryptocurrencies by two standard deviations, it saw a"major trend reversal."
- It was one of the best performing cryptocurrencies last year but ether struggled from a lack of confidence in its technology roadmap, increased competition, and “panic selling.”
Ether was the star cryptocurrency last year, way outperforming its predecessor bitcoin. But 2018 has been a different story.
The world's second-largest digital asset is down 76 percent this year and can't seem to catch a break. Investor patience is wearing thin — mainstream adoption isn't here yet, folks can now short the market, and blockchain competitors are gunning to be the top platform for developers.
Ether is the name of the cryptocurrency, but it's closely associated with the popular Ethereum blockchain. Unlike bitcoin, which gives access to a global financial network, ether gives you access to a computer network. Its use has been compared to gasoline for a car. Developers can use ether tokens as fuel for certain functions on that blockchain.
Tons of initial coin offerings, or ICOs, built their applications on the Ethereum blockchain late last year. Investors saw that as an opportunity.
"When people saw the trends in ICOs as they kept going up, it's easy to understand why people think this could be a long-term store of value," said Kyle Chapman, an analyst at venture capital firm Cosimo Ventures. "That was the appeal for it, and that's why you saw the extreme growth last year."
Initial coin offerings raised more than $7 billion last year alone, according to data from Autonomous Next. In an ICO, coins or tokens are put up for sale as a form of crowdfunding but instead of voting rights or dividends that come with shares of a company, "utility tokens" promise access to a network, platform or service.
But many of those crypto projects have gone belly up, or been outed by regulators as frauds. Even if some projects on Ethereum's blockchain are successful, they haven't been perfected or widely adopted as fast as some investors hoped.
Kyle Samani, managing partner at crypto hedge fund Multicoin Capital, said the price drop in ether this year is a reflection of that.
"People started building apps and software, but the market got ahead of itself," Samani said. "They are realizing you have to be in it for the long haul, and some investors don't have the patience."
Ethereum certainly has a first-mover advantage, but with that comes the target on its back.
Cayman Islands-based start-up EOS, for example, has been billed as the "ethereum killer" and raised $4 billion in its ICO before the product even went live in June. While it had a rocky launch, the project is spending part of that treasure chest to incentivize developers to build applications on its platform, instead of Ethereum.
"Ethereum is facing a massive crisis in investor confidence over its inability to rapidly scale in the face of competition," said Eiland Glover, CEO of Kowala, a stable cryptocurrency pegged to the U.S. dollar. "The murkiness of Ethereum's path forward and the lack of DApp mainstream adoption are both hurting ER20 token prices and the market as a whole."
EOS isn't the only contender: NEO, Cardano, QTUM, Tezos, Ethereum Classic are among the others looking to dethrone the platform.
Critics of Ethereum also tend to gripe about its ability to scale and its speed. Current blockchains, such as Bitcoin and Ethereum, can process between three and 15 transactions per second. Payment process systems such as Visa or Mastercard, in comparison, process tens of thousands of transactions in a second