Crypto Hedge Fund: ETH is Underappreciated

Crypto Hedge Fund: ETH is Underappreciated

On the 17th of January 2023, North Rock Digital, a hedge fund investing in cryptocurrencies, went on Twitter to share that ETH is underappreciated.

In their opinion, the ETH token is not fully appreciated in the crypto space. The reasoning is the ETH token has a 7.5% yield for hodling the asset. It deflates dues to the portion of fees that get burned and has a 30% px downside, with multiple px upsides.

It’s also one of the highest liquid assets, yielding rewards from fees and issuance. Since the fees get burned, it compensates for all the issuance in the ecosystem.

Another upside to the ETH asset is its value as collateral for lending and borrowing in DeFi platforms, a lot of which are built on Ethereum.

With the recent Ethereum merge, hodlers of the ETH token are seen as the natural sellers of futures and perpetual futures, which increases hedge fund activities and yield rewards. And though the official holding yield is 4%, other factors contribute to increased yield rewards.

According to traders, one of the side effects of the merge upgrade is that the futures market would be closely tied to the high staking rewards earned on ETH in the network. The higher the rewards, the higher the demand for the ETH asset and the stronger the demand for shorting and selling futures.

This would naturally lead to more people staking to earn high rewards. Since the staked ETH cannot be withdrawn until the next Ethereum fork in the middle of the year, stakers would deviate towards hedging their exposure by selling futures contracts tied to their staked ETH.

Yet, not everybody agrees with the above assessment. Some users on Twitter were quick to point out that ETH has centralized control, which is currently seen as a Security, with the SEC on its trail.

Since the official staking yield is around 4%, such features as transaction tipping and MEV rewards add to the amount of returns validators get.

During situations of network congestion, users are allowed to tip validators as an incentive for their transactions to get priority over others. MEV rewards are for validators that post new blocks and can reorder transactions. Users can pay to have the blocks ordered in their favor.

If the higher staking yield attracts more users to stake their ETH, that would mean more validators and fewer downtimes or opportunities for MEV rewards, which would mean fewer rewards in the long run.

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