CRYPTO: 80% Down, Ethereum and Crypto Fund Performance.

Ether, the second largest cryptocurrency by marketcap and enabler of $20+ billion of ICO issuance, got beat up quite conclusively this week. At one point, it was down over 82% off the year's high, recovering to 78% off the year's high. Yeesh, for anyone who wants this Crypto thing to do well. And for many, Ether's fall is confusing because (1) the number of developers building on top of the platform is increasing, (2) the number of ICOs on the platform has not meaningfully slowed down, (3) ConsenSys has dozens of enterprise and public projects that move the ecosystem along, and (4) it has a first mover advantage. The underlying qualities of the systems are, in theory, better than same time last year.

One driver is the negative sentiment in the Crypto fund community. We point you to the sources below, particularly a Tetras Capital paper that uses the store of value / money velocity argument to short Ether, and a strong-willed rant from the CEO of a crypto derivative exchange about the weak hands of Venture investors entering the trading game. While we agree that sentiment is a major driver, especially as funds buy and sell together, we disagree with the money velocity arguments. However, the ICO phenomenon did hurt Ether's function as currency. To use a project on the Ethereum platform, users have to buy and pay with a third party token that was issued primarily for fundraising. They don't use ETH to pay for the service. This in turn makes ETH less versatile, and less useful as a unit of account or medium of exchange. And second, ICOs that have raised ETH as their currency of choice have to sell it to fund operations.

Sure -- Ethereum could have scaled faster, traditional banks could have opened their doors instead of putting up regulatory walls, the SEC could have approved an ETF earlier. But investor sentiment now seems to disregard the steady and positive contributions by developers and entrepreneurs. Maybe this is because most of the 370+ crypto funds formed at the middle of last year, and missed out on the early boom. Looking at the self-reported performance of some funds in our database shows the extent of the damage. We have two samples: July 31st and April 30th. In each case, we compare them to the BITA 50 index, which tracks the top 50 liquid coins. The first chart shows both the returns and the index, the second chart just shows the difference. The reported outperformance averages around 20%. Given the BITA 50 index is now down about 70%, we expect that most crypto funds are at least 50% underwater for this year. No wonder so many are rushing to hedge through shorting.

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