The Intangible Reasons Ethereum and Bitcoin Lead

The Intangible Reasons Ethereum and Bitcoin Lead

Decentralized finance (DeFi) is exploding. The amount of capital locked in DeFi, an imperfect yet useful measure of traction, recently hit an all-time high of $35 billion.

Today, Ethereum is the dominant network for DeFi in all important metrics, including capital flows, locked capital, number of projects and developers.

Alex is a co-founder at Zabo, a platform enabling fintechs and financial services companies to easily connect cryptocurrency accounts to their applications.

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The exploding growth in DeFi has stoked an already fierce battle among smart contract platforms, aka “Ethereum-killers,” to win share of the emerging category.

Tushar Jain, partner at the crypto venture firm Multicoin Capital, recently made comments on Twitter calling into question Ethereum’s DeFi dominance:

Jain’s view is held by many smart investors and can be summarized as: eventually higher performance, better designed, less expensive networks will start to eat into Ethereum’s DeFi market share.

Indeed, investors have poured billions into competing smart contract platforms in support of this exact thesis.

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Yet, despite many competing platforms launching and deploying vast amounts of capital in their efforts, Ethereum’s network effects and moat are inexplicably as strong as ever. How is this possible?

It’s possible because Ethereum has powerful intangible assets that are incredibly difficult to reproduce and compete against.

This isn’t a new dynamic – intangible dominance has long been observed and impacted traditional markets and companies, too.

Coca-Cola, Google and … Ethereum?

You can generally split assets into two categories: tangible and intangible.

Tangible assets are physical in nature – things like money, equipment and servers. For computer networks, a tangible asset might include how much computational power can be delivered or how fast a query can be run – things based on underlying physical properties of the network. Given tangible assets’ physical nature, they are quite easy to quantify and measure.

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By contrast, intangible assets do not exist in physical form – such as intellectual property, brand recognition and trust. Intangible assets can be very difficult to quantify, making it harder to spot their influence on final outputs like earnings or number of connections in a network. Intangible assets can also be incredibly difficult to replicate, because their creation often relies on something far more complex, like the thoughts of a human brain.

Investors have long known that successful companies have strong intangible qualities giving them the ability to accrue outsized value and stay highly competitive for long periods.

Consider a company like Coca-Cola. Imagine you created a cola that tasted even better than Coke (“higher performance”) and supplied enough capital to build a better world-wide distribution network to rival Coca-Cola’s (“more scalable” and “less expensive”).

Investors have long known that successful companies have strong intangible qualities giving them the ability to accrue outsized value.

Would that enable you to convince most existing and new cola drinkers to make the switch off Coke?

Probably not.

Coca-Cola’s tangible assets – the raw ingredients that make up Coke’s taste, packaging and distribution – are not what secure the company’s dominant market position alone. Coke is dominant today because of intangible assets: its universal brand awareness, customer loyalty and the way it makes people feel. Those are incredibly hard to reproduce.

Yet, Coke is a consumer brand. What about technology? We find the same trend there, too.

Google is a clear example of intangible dominance in a technology market. While Google is widely viewed as having the best technology (part of its brand and thus intangible), like Coke its brand is so strong that it became a generic term (“google it”).

Today, more than 20 years after Google was founded, competing search engines still languish behind Google’s 85%+ market share. Why? Unassailable intangible assets, including brand, trust and existing search volume, which together form part of the moat that enables Google to continually maintain superior tangible assets over long periods.

Ethereum the intangible

What about open-source networks? Do the same rules apply?

In open-source networks, there are far fewer intangible assets to work with. There are no patents or intellectual property that make one network better than the other. All networks compete on a vast, completely open plane, viewable and copyable by all.

Initially it may seem that this makes tangible assets such as network speed, computational power or capital availability more valuable.

But it’s quite the opposite. Tangible assets are more easily reproduced in open-source software than just about anywhere else. Just as in traditional businesses, intangibles are king in open source.

Competing networks are quick to point out tangible weaknesses in Ethereum’s network: high transaction fees (not cheap), lack of scalability (not fast) and even easily fudgable smart contracts (not secure).

But they fail to fully appreciate that Ethereum’s immense intangible assets are the real moat behind its dominance:

A vast, rapidly expanding interconnectedness, of developer energy (proof of work), capital, assets and projects (akin to Google’s existing search volume moat)

A cryptocurrency brand second only to Bitcoin (the category leader) and the dominant brand in DeFi where Ethereum is far and away the category leader

A fanatically loyal community that includes the most dominant network of developers and projects in the entire crypto industry.

Attacking primarily on a tangible basis – “better technology” and more resources – will not knock Ethereum from its dominant position anymore than “better cola” or “better search results” will unseat Coke or Google. The intangible moat at this stage is simply too wide, giving Ethereum free range to continue building compounding tangible infrastructure.

Many well-capitalized, super-talented and well-meaning teams have built and launched networks that have struggled (so far) to put a dent in Ethereum’s DeFi dominance. What most of these attempts have in common is they assume that producing superior tangible outcomes in the same categories Ethereum owns will be the strategy to win.

What about new users?

Jain’s comment importantly makes the distinction of “new DeFi users,” implying that Ethereum’s dominance won’t last as DeFi grows and there are many new participants.

Yet, we don’t have to look farther than Bitcoin to see the opposite precedent.

Similar to Ethereum, and for twice as long, Bitcoin has confronted and ultimately out-competed every contender to the throne of the dominant, decentralized, store-of-value network. Similar to Ethereum, Bitcoin has constantly been attacked over the perceived limitations of its network, including that it’s too slow and not scalable.

The intangible moat at this stage is simply too wide, giving Ethereum free range to continue building compounding tangible infrastructure.

Yet, despite a seemingly infinite number of tangible iterations, every Bitcoin competitor has failed to generate an intangible moat of significance in brand, awareness, trust or adoption. Instead of faltering, Bitcoin has dominated the market with a more than 60% share by market cap. Bitcoin’s brand of “digital gold” has become so powerful that not even gold itself can escape Bitcoin’s intangible gravity.

Twelve years and thousands of competitors later, Bitcoin continues to convert an outsized portion of the incremental crypto user.

See also: Money Reimagined: Bitcoin and Ethereum Are a DeFi Double Act

The only network with a brand-loyal following and network effects similar to Bitcoin is Ethereum. It obtained them by creating completely new categories – smart contracts and DeFi – that did not compete with Bitcoin directly. If Bitcoin and internet businesses with powerful, intangible network effects are any indication, we’re headed towards more dominance for Ethereum, not less, driven by an ever expanding intangible moat.

So what’s a competing technologist to do? Stop building? Stop investing?

None of the above.

Technologists should keep building and investing in new categories where the authenticity of their product and vision will attract not just users, but loyal followers.

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Let’s talk about growth. With corona receding, politics growing less exciting, and a new year ahead, investors are getting optimistic – and that means there’s a hunt for stocks that will bring in strong returns. In other words, growth stocks. In a recent interview, Jan Hatzius, chief economist at investment giant Goldman Sachs, said that he sees GDP growth in 2Q21 hitting as high as 10%. In an environment like that, most stocks are going to show a growth trend. Now, we all know that past performance won’t guarantee future results. Still, the best place to start looking for tomorrow’s high-growth stocks is among yesterday’s winners. Bearing this in mind, we set out to find stocks flagged as exciting growth plays by Wall Street. Using TipRanks’ database, we locked in on three analyst-backed names that have already notched impressive gains and boast solid growth narratives for the long-term. Kaleyra (KLR) We will start with Kaleyra, a cloud computing company offering communications solutions. The company’s SaaS platform supports SMS, voice calls, and chatbots – a product with obvious applications and value in today’s office climate, with the strong push to telecommuting and remote work. Kaleyra boasts over 3,500 customers, who make 3 billion voice calls and sent 27 billion text messages in 2019 (the last year with full numbers available). Over the past 6 months, KLR shares have shown tremendous growth, appreciating 155%. Kaleyra’s revenues have grown along with the share value. The company’s 3Q20 results hit $38.3 million, the best since KLR went public. While Kaleyra still runs a net earnings loss each quarter, the Q3 EPS was the lowest such loss in the past four quarters. Maxim analyst Allen Klee is bullish on KLR, seeing recent growth and product offerings as indicative of future performance. “Over the past few years, Kaleyra has posted double-digit revenue growth and positive adjusted EBITDA. We forecast revenue growth of 9%, 22%, and 28% for 2020-2022. We project adjusted EBITDA declines in 2020 to reflect public company costs and COVID-19, but growth at over twice the rate of revenue for the following two years. We expect benefits from operating leverage, low-cost tech employees, cost volume discounts as the company expands, and margin improvement from new offerings and geographies. Over the longer term, we believe the company can grow revenue close to 30% with even faster bottom line growth," Klee opined. With such growth, it’s no wonder Klee takes a bullish stance on KLR. To kick off his coverage, the analyst published a Buy rating and set a $22 price target. This figure implies a 45% for the coming year. (To watch Klee’s track record, click here) Overall, based on the 3 Buy ratings vs no Holds or Sells assigned in the last three months, Wall Street analysts agree that this ‘Strong Buy’ is a solid bet. It also doesn’t hurt that its $19 average price target implies ~26% upside potential. (See KLR stock analysis on TipRanks) Vista Outdoor (VSTO) Next up, Vista Outdoor, is a venerable company that saw its niche gain attractiveness in recent times. Vista is a sporting goods company, with 40 brands in two main divisions: outdoor products and shooting sports. Vista’s brands include well-known names as Bushnell Golf, CamelBak, and Remington. The company has found a burst of success in the ‘corona year’ as people have turned more and more to outdoor activities that can be practiced solo or in small groups – expanding the customer base. VSTO shares are up as a result, by 214% in the last 12 months. Vista’s earnings reflect the increase in consumer interest in outdoor sports. The company’s EPS grew in 2020, turning from a net loss to a $1.34 per share profit in the fiscal Q2 report (released in November). The fiscal Q3 report, released earlier this month, showed lower earnings, at $1.31 per share, but was still considered solid by the company, as it covered winter months when the company normally sees a revenue decline. Both quarters showed strong year-over-year EPS gains. Covering Vista for B. Riley, 5-star analyst Eric Wold sees several avenues for continued growth by Vista. He is impressed by the growth in firearm and ammunition sales, and by the price increase for products in both the outdoor goods and the shooting sports divisions. “Given our expectation that the increased industry participation numbers for both outdoor products and shooting sports during the pandemic will represent an incremental tailwind for VSTO in the coming years beyond the impressive production visibility that has been created by depleted channel inventory levels, we continue to see an attractive set-up for baseline growth,” Wold commented. Overall, Wold is bullish on the stock and rates it a Buy, with a $41 price target. This figure indicates room for 27% upside in the coming year. (To watch Wold’s track record, click here) Vista is another company with a unanimous Strong Buy consensus rating. That rating is based on 9 recent reviews, all to Buy. VSTO shares have an average price target of $36.78, which gives an upside of 14% from the trading price of $32.15. (See VSTO stock analysis on TipRanks) Textainer Group Holdings (TGH) You might not think about the ubiquitous cargo container, but these deceptively simple metal boxes have changed the face of bulk transport since their breakout proliferation in the 1960s. These containers make it easy to organize, load, ship, and track vast amounts of cargo, and are especially valuable for their ease of switching; containers can be quickly loaded on or switched between ships, trains, and trucks. Textainer is a billion-dollar company that buys, owns, and leases shipping containers for the cargo industry. The company has over 250 customers, and boasts a fleet of 3 million twenty-foot equivalent units (TEUs). Textainer is also a major reseller of used containers, and operates from 500 depots around the world. Even during the corona pandemic, when international trading routes and patterns were badly disrupted, and the quarterly revenues were down year-over-year, Textainer saw share gains. The company’s stock soared 110% over the past 12 months. The bulk of these gains have come in the past six months, as economies – and trading patterns – have begun to reopen. Looking at Textainer for B. Riley, analyst Daniel Day is deeply impressed. He sees this company as the lowest priced among its peer group, with a strong market share in a competitive industry. Day rates TGH a Buy, and his $31 price target suggests it has room for 57% growth ahead of it. In support of this bullish stance, Day writes, in part, “We believe that TGH is an underfollowed, misunderstood name that is ideal for the portfolio of a deep value investor looking for cash flow–generative names trading at a steep discount to intrinsic value. With new container prices at multiyear highs amid a resurgence in container shipping, we expect upcoming earnings results to be positive catalyst events for TGH…” Some stocks fly under the radar, and TGH is one of those. Day’s is the only recent analyst review of this company, and it is decidedly positive. (See TGH stock analysis on TipRanks) To find good ideas for growth stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights. Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

Ethereum shoots to new all-time high past $1,800 for the first time after CME futures launch

Yuriko Nakao/Getty Images

Ethereum on Tuesday hit a new all-time high of $1,800, continuing its upswing since the beginning of 2021.

The token’s record high came a day after nearly 400 ETH futures contracts were traded on the CME.

The CME’s launch of ETH futures could increase price volatility in the coming weeks.

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The price of Ethereum’s ether hit a fresh record on Tuesday, driven by the launch of CME futures a day ago.

The cryptocurrency soared past $1,800 per token around 09:30 a.m. GMT, rising 10% in the last 24 hours. Ethereum’s all-time high coincided with bitcoin smashing a new record of $48,000 after Tesla revealed a $1.5 billion bitcoin investment, all of which is adding to the momentum of mainstream crypto adoption.

On the CME’s first day of trading ether futures, the exchange saw nearly 400 contracts traded on its platform. That equates to about 19,400 ETH, or $33 million, according to Coin Market Cap. The exchange announced its plans to offer trading in ETH futures in December.

The CME’s launch will significantly strengthen ethereum’s credibility as an asset class just like it did for bitcoin in 2017, said Samantha Yap, founder and CEO of Yap Global. While ethereum is often still referred to as bitcoin’s lesser cousin, there will be a shift in media perception about it with this launch, she said.

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Furthermore, the launch could increase price volatility. A few reasons could contribute to that, according to Gunnar Jaerv, COO at digital-asset custody-provider First Digital Trust.

Institutions would be able to trade in large volumes, as there is now more interest in digital assets than ever before. When the CME launched bitcoin futures in 2017, its price dropped from $20,000 to $13,000 almost immediately.

Separately, with crypto fund manager Grayscale adding more ETH to its trust, traders can expect to see a further rise in institutional interest in digital asset futures, especially as no actual delivery of ETH occurs on the settlement date, making it easier for institutional players to participate as no digital asset custody is required.

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