7 Reasons To Sell Your ETH Tokens

Summary

• Ethereum is the #1 platform for running decentralized applications with strong development activity and active community.
• High token price of ETH is unsustainable in the long run because Ethereum operates in a perfectly competitive environment and can easily be copied and forked.
• Ethereum's switch to proof-of-stake consensus mechanism will most likely benefit users at the expense of investors.
• Scalability problem, criticism of proof-of-stake, rising competition, lack of successful use cases, accusations of being centralized, immaturity as an assets class - reasons for investor to be vigilant on ETH's prospects.
• According to Nick Szabo (alleged Satoshi Nakamoto, creator of Bitcoin) Ethereum is "headed for either a huge bureaucracy or disaster".

"Ethereum-the-great-project": the world computer #1 to run decentralized apps without censorship

Ethereum is a super-cool decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference. With Ethereum anyone can create a decentralized application (DApp) and even issue a token. Ethereum currently is the number one platform for DApps, with competitors like Neo, Cardano and Lisk lagging well behind. According to the research by Ernst&Young 77% of initial coin offerings (ICOs) are done on Ethereum:

Ethereum's ICO market share source: EY ICO Research (December 2017)

Users of Ethereum platform pay for the services of the platform using Ether tokens (ETH). Those tokens are paid to the miners to motivate them to support the platform. Total value of Ether tokens today is worth more than 80 billion dollars. ETH is very liquid with daily trade volume totaling almost 1 billion dollars.

source: CoinGecko

There are 1176 DApps being developed on Ethereum blockchain as of now, the community is very strong, activity on GitHub suggests that developers are working without a letup on the platform's code.

So ... what is wrong with investing in ETH?

An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future (Investopedia). As ETH is not a share or a bond, it cannot generate future cash flows such as interest or dividends. So there is only one reason for you to buy ETH as an investor: the hope for the price to go up. Of course, this may happen in the short term because of the speculation and more people buying into crypto. However, in the long run high ETH prices which we see now are unsustainable. Here are the reasons.

Reason #1. Ethereum is operating in a perfect competition

P = MR = MC. This is what they teach you in every Economics class. You cannot make an economic profit in a perfectly competitive markets. Period.

Imagine that Ethereum becomes the dominant platform for DApps, there is no alternative, ETH prices go up, there is a great demand for tokens from creators of DApps and miners enjoy significant economic rent. This situation is highly unprobable. Programmers will create their own decentralized platforms and more miners will enter into Ether mining until there is no economic rent.

There are almost no barriers to entry – Ethereum’s code is open source, it can easily be forked. As John Pfeffer puts it, the ability to fork protocols maximizes utility for users but suppresses economic rent for token holders. So, over the long run the price of ETH will converge to the price of computing power.

Reason #2 – Bitcoin is superior to Ethereum

This seems like a very subjective statement right now. But let me support my argument.

First of all, Ethereum is overused and can be easily substituted:

Source: Ragnar Lifthrasir ⚑ (@Ragnarly) | Twitter

Secondly, while proof-of-work (PoW) has already proved itself viable, proof-of-stake (PoS) is a pig in a poke.

Let’s see what Nick Szabo says about PoS:

Source: Nick Szabo⚡️ (@NickSzabo4) | Twitter

Founder of Ethereum Vitalik Buterin believes that switching from PoW to PoS will help to prevent attacks on the network, because you can’t burn someone’s hardware if this someone tries to perform 51% attack on the network, but you can burn this person stake (burn attackers coins using code).

Here is Nick’s thought’s on that:

Source: Nick Szabo⚡️ (@NickSzabo4) | Twitter

Who is Nick Szabo and why his opinion even matters? Well, this guy is one of the most probable candidates to be Satoshi Nakamoto. In 1998, Szabo designed a mechanism for a decentralized digital currency he called "bit gold". Bit gold was never implemented, but has been called "a direct precursor to the Bitcoin architecture." Vitalik Buterin was 4 years old back then. Szabo’s experience in the field and his reputation give at least some credit to his opinion.

Reason #3 – Scalability issue may take longer than expected to be resolved

At the moment there is no way to run applications with billions of users on chain. As co-founder of Coinbase, Fred Ehrsam, put it:

We’re roughly 250x off being able to run a 10m user app and 25,000x off being able to run Facebook (FB) on chain.

Scalability is the problem why Ethereum started to lose its clients to other platforms. I covered this issue in my article here.

I believe that scalability issue is resolvable, but I think it will happen no earlier than in 2019. In my opinion, even Vitalik doesn’t know how to make significant scalability improvement at the moment, because if you know what to do, you don't ask for advice. But Vitalik and Co invite others to help them deal with the problem of scalability, which is a sign they can't do it on their own.

Reason #4 – Solving scalability issue is good for users, still bad for investors

Increasing scale will lead to higher velocity of ETH tokens. According to MV = PQ monetary model, increased velocity will translate to lower token price. John Pfeffer covers this issue in more detail here. Again, great platform, bad investment.

Reason #5 – DApps created on Ethereum so far are useless and inconvenient

According to Adam Ludwin, "while it’s early, if none of the 730+ decentralized apps built on Ethereum so far seem useful, that may be telling. Even in year 1 of the web we had chat rooms, email, cat photos, and sports scores. What are the equivalent killer applications on Ethereum today?"

Reason #6 - Ethereum is more centralized than Bitcoin

Researchers looked at "commits" - bundles of changes a developer proposes to make to the codebase. 7 percent of all the files in the Bitcoin Core software were written by one developer, while about 20 percent to ethereum were written by a single coder.

We don't even mention the role Vitalik plays in Ethereum even if he denies it.

What would happen if Vitalik decided to leave the project? (highly unprobable but still question worth asking).

Reason #7 - Price has already increased enough to reflect the potential behind the smart contracts.

Ethereum's market cap is more than 80 billion dollars. In terms of market cap it is comparable to Starbucks (SBUX). Even Vitalik thinks that the cryptocommunity should "earn" the valuation assigned to it.

source: Vitalik Buterin's twitter account

Final notes and recommendation

Just trying to imagine what Ethereum may become in the future, I think that it has a chance to become a universal protocol for decentralized software, national cryptocurrencies and fundraising.

Investment is about calculating the potential profit over the time horizon and entering into a position at a reasonable price. With Ethereum tokens we don't know if there will be any profit, we don't know when the platform will become popular enough with wide audience, and we are pretty sure that the price was more reasonable at the beginning of 2017 than it is at the beginning of 2018.

Price of 1 ETH is March 2017 was around $20, today it is at $862.

What happened in 1 year that the price of ETH has gone up 43 (!) times? The problems I mentioned above were there a year ago. They are present now. Has there been a 43-fold improvement in ETH protocol and the platform's prospect? Don't think so. There is a guy who bought ETH a year ago at $20 and now this guy may be the one selling his token to you at $862. Do you think the $20 investor guy has earned this 43x profit? I don't want to be a guy who offers someone 43x exit option.

I would recommend a long term investor to sell ETH (price as I write this is $867). Particular point of exit can be located using technical analysis.

Analyst’s Disclosure: I am/we are long BTC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Aydar is a Chief Editor at CryptoEconomist.Ru and a proponent of sustainable financing. No content within this article constitutes a recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. The author is not advising you PERSONALLY concerning the nature, potential, value or suitability of any particular security, portfolio of securities, transaction, investment strategy or other matter. To the extent that any of the content of this article may be deemed to be investment advice or recommendations in connection with a particular security, such information is impersonal and not tailored to the investment needs of any specific person. The author is not offering investment advice. You understand that an investment in any security is subject to a number of risks, and that discussions of any security published in this article will not contain a list or description of relevant risk factors.

Comments

[GeorgeH]

There are several categories of cryptocurrency. I believe in some degree of diversification as a long term investor/speculator. It doesn't make sense to dump ETH for BTC. BTC has value because other people attribute value to it. ETH allows developers to develop smart contracts. I hold both (twice as much ETH as BTC). Of course, traders will have a different view and may not be interested in diversification.

[YeowBoon]

Have I bought any crypto currencies before? No
Will I buy any cryto currencies in the near future? No
Can I be wrong with my skeptism about bitcoin? Possibly
Will i regret over my decision? No
Nevertheless, I wish everyone luck who buy into such coins, i agree that there is money to be made for those who buy and sell at the right time.

[Aydar Mannanov]

Hi, thank you for joining the discussion.

Cryptoassets offer good opportunities for diversification of the portfolio.
Allocating 5-10% of a portfolio to cryptoassets may improve portfolio's risk-return profile.

Please read Cryptoassets by Burniske and Tatar.

[lanceajones]

The biggest problem with this analysis is that ETH has to be used to buy many of the other coins including the coins that could replace it. Until all coins can be purchased with Bitcoin or another coin ETH is still a required asset to have in your portfolio just to operate fully in the market.

[Aydar Mannanov]

Thank you for joining the discussion. Yes, it is true that ETH is needed to buy ERC20 tokens and participate in ICOs. However, according to MV = PQ medium of exchange tokens have high velocity, hence, lower valuation.

[ConsideredInvestor]

I noticed a lot of this FUD seems coordinated probably to drive the price down or maybe to destroy confidence in crypto (drive funds into metals?)
NEO - untouchable up to now- got a dose a few days ago and I noticed ETH now.
There is no fundamental reason in either case why one should sell right now.

[Aydar Mannanov]

Just to be clear, I believe in crypto. However, it is not a reason to invest in it right now.

[Bik]

Perhaps my favorite part of this article is when the author first claims that EHT value is low because its "useful value" can easily be copied.....and immediately afterwards claims BTC, which has no "useful value", is superior.

IOW, ETH can be used for a specific purpose. Of course, you may argue that it is overvalued or undervalued with regard to the value of that purpose. But you simply cannot in the same breath claim superiority of BTC, whose only value is the belief it will be more valuable tomorrow.

Almost as silly is the argument that BTC, which is an oligopoly controlled by a handful of mining farms, is less centralised than ETH, and base this on how much code was written by one person.

[Aydar Mannanov]

Thank you for this comment.
Bitcoin is a store of value, this is why there is a reason to hold it.
ETH is a method of payment for using the decentralized world computer. It should have a higher velocity than BTC.

[fxfx]

"Bitcoin is a store of value, this is why there is a reason to hold it. "

Bitcoin is BELIEVED by some people to BECOME a store of value at some point.

there, I fixed it for you.
Anybody who holds BTC here does not hold a "store of value" . he holds something that he hopes to become such a store of value.
Currently, people are willing to pay 8,600 $/BTC to enjoy that hope. That's about 25 % less than a mere three days ago.

The crux is this: believers in the "BTC is digital gold" nonsense claim trhat once the volatility settles down, BTc coulld indeed function as a store of value. Fair point.

However, 90% of the people who bought BTC ( at a minimum) did so not in order to store value but to profit from BTc's appreciation versus the $, € etc. Now, once there is no price appreciation, they will exit, because their rationale disappears. What will be left will be the long time hodlers (most of whom likely got into BTC at extremely low prices). But without a marginal buyer, the ongoing costs of running the BTC network (about 10bn $ a year currently) will heavily weigh on the price even if all the big hodler hodl on.

There is a reason why it takes a long time to become a widely accepted store of value. And BTC (any crypto of today's tech) has enough inherent and incurable flaws to never be a serious contender.
It's all hopium and make believe. five-ten years out BTC wiltrade at a fraction of today's $8k+

[User 48543858]

The most misinformed writing of the year. straight from russia. love it.

[Aydar Mannanov]

Haha :) Loved the way you mentioned Russia :)

[Mr George Stobbart]

Long Ethereum, Long ICX, Short XRP, Short USD (Neutral/Long BTC)

[labiak]

You use the word “ economist “ in your URL, alluding you are a professional economist- what education, work experience and overall definable knowledge do you have - I like many others are trying to research this field - if you write an article you need creditability- as a result be transparent and post your credentials

[Aydar Mannanov]

I passed CFA Level 2 exam. You can check it here: http://bit.ly/2DaAP5e

I am a Master in International Economics from State University of Management in Moscow. Here's the diploma: http://bit.ly/2G6BRTf

Unfortunately, there is no way to prove my diploma using blockchain yet, hope this solution will come some time soon:)

[RealAlphaMan]

After reading 113 Articles on Alpha since last summer pronouncing Bitcoin's demise, I was waiting for someone to bash on Etherium. I was thinking...wait..maybe they don't know what Etherium is at Alpha? It's not getting mainstream coverage like Bitcoin...or wait...maybe it's so great no one can bash it? Or then I was thinking no one wants to bash it because so few people have it, no one will read it--who will care? Then I was thinking that you need advanced understanding of blockchain to bash it and that knowledge base is busy advancing Etherium.

Then I asked someone I work with what his opinion of Ether was? His response: "How can you get rid of it? You need that in the Hospital to breathe!"

Based on that, I am holding long my Ether and Etherium.

[Aydar Mannanov]

Thank you for joining the discussion. Let me be clear, Ethereum is an amazing project, with great perspectives.

Not all the good projects are good investments though. The rise in token velcocity may lead to lower token valuations.

If Ethereum Foundation decides to issue more tokens it may lead to lower valuations.

There are just to many "ifs" which are not favourable for investors.

It's like investors are sponsoring fundamental research.

[aprent1470]

This is one of the most misinformed crypto articles Ive seen:

Reason #1. "Ethereum is operating in a perfect competition."

I think the author is confused about the concept of perfect competition, let alone why it would apply to Ethereum. Perfect competition implies: all firms sell an identical product (the product is a "commodity" or "homogeneous"); all firms are price takers (they cannot influence the market price of their product); market share has no influence on price; buyers have complete or "perfect" information.

I dont think I need to state further why most of these don't apply to the current situation, or inversely why it would be no different for bitcoin.

Reason #2 – "Bitcoin is superior to Ethereum."

How? Because bitcoins price and market cap is currently higher? They don't even serve the same purpose.

Reason #3 – Scalability issue may take longer than expected to be resolved.

This is the problem for every single crypto with a working network (new coins that claim to have solved this don't actually have a working viable product yet, just promises which time will only tell to be true).

Reason #4 – Solving scalability issue is good for users, still bad for investors

Makes no sense. Would a company that is able to provide the fastest and cheapest service suddenly drop in value than the rest? It would be good for everyone.

Reason #5 – DApps created on Ethereum so far are useless and inconvenient
Ok, sure, some Dapps could be claimed to be "useless", have you researched them all? Many aim to solve real problems that would provide real value, the Dapps are more dependent on scalability being solved before they can effectively be rolled out.

Reason #6 - Ethereum is more centralized than Bitcoin
Pretty sure most of 90% pf bitcoin is owned by 1000 people

Reason #7 - Price has already increased enough to reflect the potential behind the smart contracts.

According to who? Its not even mainstream yet, how do you quantify the value smart contracts will have for all companies and organizations using it and how that will reflect the price? Magic?

Another thing that doesnt make sense: "POS is bad for investors." POS allows investors to stake and gain dividends (a feature that will not be available to bitcoin), which will reduce the amount of sellers and if anything, increase price. With staking one could hold long AND gain dividends, independent of price.

I will give the author the benefit of the doubt that FUD was not his intention, just ignorance.

[JohnPN]

How is switching to PoS bad for investors? Currently, mining rewards are being paid to MINERS, thus increasing the market cap and thereby causing inflation. With PoS, this inflation still happens but the INVESTORS get the "mining" reward. It's fantastic for investors, and a disaster for mining farms. This is why Bitcoin, which is controlled by major farms, cannot ever move away from their PoW model.

[jpp02468]

i’m sorry but recommending bitcoin over ethereum is pretty wack. bitcoin is about as one dimensional as it gets for a crypto and it doesn’t even do what it does well. if crypto currencies were ever to be banned that would be the end of bitcoin but ethereum would live on because it’s a platform.

i understand that you’re more basing your article on the investment nature between the two, but you can’t take the platform out of the equation. when the dust settles there will be a plethora of currencies but all the market is going to care about is the tech and growth. buying ether is a bet on the blockchain tech and growth, buying bitcoin is a bet on others deciding to buy it as well (ie, pure speculation). i don’t see how an investment in bitcoin is in anyway a bet on growth, and as i’m sure you know, the market rewards growth with absurd PE’s

if cryptos ever actually get huge it will be because of the tech and not because of further speculation. ethereum is hands down your best bet here.

last point. where’s amazon without bezos? having vitalek is a positive and not a negative. obviously if he were to leave it would hurt ethereum, but the benefits of having him outweigh the potential negatives. ethereum has unified developers and bitcoin does not

[Majestros]

How exactly would ethereum live on if cryptocurrencies were banned?

[Aydar Mannanov]

Thank you very much, I really liked your comment!
- crypto won't be banned, but sure it will be more regulated (if it is even possible). I suggest to read "The Internet of Money" by Andreas Antonopolous, the book offers good ideas on the future of money.
- imho cryptos will become huge because of the adoption. However, it doesn't mean that cryptos are a good investment. Decentralized platforms favor users, not investors. Code is open (copy it and you can start your own platform), competition is fierce.
- the point with Vitalik. I believe that there should be a clear leader in any project. However, Vitalik is not almighty, which the community seems to forget.

[Scepisle]

Nice opp for buying today..

[Aydar Mannanov]

True, better than it was yesterday :)

[sup port]

But less than tomorrow ;)

[sup port]

Haha !! I was right !!

[techbait]

Yeah, okay...

[consortium]

just in case your wondering. there is maybe 50 to 100 coins that are going to be successful the rest of the crap will go to zero over the next year so fibgiur research folks. sell your etherum if you want I will buy it all day long

[fxfx]

"there is maybe 50 to 100 coins that are going to be successful the rest of the crap will go to zero over the next year so "

I would be surprised, seriously, if just ONE out of the 1000-odd of today's "coins" will trade higher five years out compared to today.

That said, I think that ETH is indeed way overpriced (though I own a bit of it still, just in case they morph into something more useful). So far, it has been little more than an ICO platform. And given the high failure rate of ICOs (many of which are outright scams anyway) that isn't really a great long term use case. But even if it were: 60-80 bn for an ICO platform? Really?
Of course, BTC basically has the same issue with its value proposition...

[consortium]

Ethereum is over used that's your argument. sell your etherum please I'll buy it all. thanks in advance folks.

[Aydar Mannanov]

Thank you for joining the discussion. It's selling at 10% off today, means that you couldn't buy it all?

[AJoil1]

FUD

[Aydar Mannanov]

Fear, uncertainty and doubt (often shortened to FUD) is a disinformation strategy used in sales, marketing, public relations, talk radio, politics, religious organizations, and propaganda.

Well, I have no motivation for disinforming anyone.

[TheShaunPEffect]

Everyone that was smart did the same was in at 650, Got out around the 1400 peak Luckily... Though i can’t say i haven’t been watching closely from the sidelines to see what the future holds for them still being a mainstream coin.

[Aydar Mannanov]

Thank you for joining the discussion. What were your reasons for getting out at 1400?

[labiak]

Next to your name is a URL crypto economist.ru please provide credentials

[Aydar Mannanov]

Hi, what do you mean? I am the founder of the website you mentioned.

[soajustice]

Haha, waiting for the next article with the headline:

7 Reasons To Sell Your BTC

7 Reasons To Sell Your XRP

7 Reasons To Sell Your (insert 1 out of 1500 coins)

I love watching this space, regardless where it goes. Funny to see people make these crazy predictions (BTC will hit $100k by EOY --lol). My gut tells me it will end pretty bad, and I have a small crypto portfolio (gamble).

Who really thinks BTC will have another 1300% gain in one year....lol

Crypto dreams.

Cheers!

[Aydar Mannanov]

Haha! (:

Publishing something like that on XRP is not such a bad idea. http://bit.ly/2D8wT54

Most of the coins are going to end up disappearing and going to zero. PonziCoin is one of those 1500 currencies :) http://bit.ly/2G0Q4Rn

I like BTC though. Check out this SA article (it's not mine)
https://seekingalpha.c...

Just to be clear, I don't say that ETH will go to zero or something like that. I believe its an amazing project, but bad investment.

[ilyabiervliet]

Reason #1. Ethereum is operating in a perfect competition
As all other virtual coins out there (including Bitcoin)

Reason #2 – Bitcoin is superior to Ethereum
You believe this is true because the guy who may (or may not) have invented bitcoin said so? I think there may be an incentive for that person to believe that dont you think? ETH is Experimenting with pos since pow is tried and true? all of crypto is one big experiment at this point.

Reason #3 – Scalability issue may take longer than expected to be resolved
As with most generation one coins (including bitcoin)

Reason #4 – Solving scalability issue is good for users, still bad for investors
applicable to all coins (including BTC)

Reason #5 – DApps created on Ethereum so far are useless and inconvenient
an actual argument, why ETH is experiencing difficulties. It is also its greatest advantage over BTC along with smart contracts.

Reason #6 - Ethereum is more centralized than Bitcoin
The lightning network is for BTC, by Blockstream. it is sponsored by mastercard, the FED and the bilderberg group.

Reason #7 - Price has already increased enough to reflect the potential behind the smart contracts.
So this argumentation based on? The creator thinks ETH is not worth its current price and you believe him?? Do you also believe him if he says ETH is worth 100K per coin then?

We are in the wild west when it comes to crypto. You can't "invest" in cryptocurrency, only speculate.

[Aydar Mannanov]

Thank you for a useful comment on this discussion.

I agree that one can't value something without future cash flows.
But we can try to price the assets without cash flows:
http://bit.ly/2G8Kw7J

Anyways, we need some frameworks to think about the value of cryptoassets.

Btw, Nick Szabo is definitely not some guy.