The coin’s potential has been very slow to materialize.
A few weeks ago I decided to offload the vast majority of my Ethereum (ETH -0.95%) tokens after holding and accumulating them over the last few years. I don’t expect to buy more anytime soon, even if the price drops to attractive levels.
Here’s why.
1. The coin’s price surpassed the target level in my investing plan
The biggest reason I decided to sell nearly all of my Ethereum was that its price was above the level that I had identified as my sell point.
I first started to accumulate Ethereum in mid-2020. Per my initial investing plan, I did not set a price target for a sale at the time, opting instead to reassess the issue after roughly three years had elapsed. I continued to dollar-cost average (DCA) and build up my position through roughly the middle of 2023, after which I set a firmer target and stopped buying more.
I resolved to think strongly about selling after the price hit somewhere above $3,000 per token, a level the coin had surpassed in at least three of the periods I’d held it, as shown in this chart:
Ethereum Price data by YCharts
When the coin broke through that price level this year, it was only a matter of time. It’s entirely possible that my sale will mean that I’ll be missing out on the coin’s future growth. But because of the next reason we’ll discuss, I won’t be losing any sleep over it.
2. Transaction fees were too high, and not improving by enough over time
Transaction fees, known as gas fees, are perennially high on the Ethereum chain. To transact, you’ll need to cough up anywhere from $5 to $80 or more, depending on the day. And despite many repeated promises from the chain’s developers regarding a permanent decline of gas fees, they have remained stubbornly and painfully high for years on end.
I don’t day trade in and out of my cryptocurrencies, so it might seem as though it’s hyperbole to complain about the infrequent transaction costs associated with building up a position. But remember, my strategy was to dollar-cost average. Making a series of purchases entailed paying gas fees on the order of $600 in total — way too much given the relatively small size of my position and my investments.
What’s more, the thing I kept noticing again and again over the years of my holding was that the high fees were discouraging my friends from buying Ethereum as an investment or trying to use it to interact with decentralized applications (dApps) and decentralized finance (DeFi) services. Noticeable commission costs are practically extinct for most retail investors trading stocks, so the expectation that people often have is that the same will be true in cryptocurrency.
After a while, I stopped touting the coin as an investment because I wanted to avoid the subsequent conversations about how high the gas fees were. Ultimately I recognized that behavior in myself, and it was an unambiguous sign that it was time to sell.
3. It’s in the uncanny valley of cryptocurrencies
The final reason that I sold Ethereum is that it is presently in a bit of an uncanny valley.
If you’re not familiar, the uncanny valley is a phenomenon in which a person’s reaction to a humanoid robot is warm when the robot does not appear to be very human at all, warm when the robot appears to be fully human, but ice-cold or otherwise negative when the robot appears to be nearly human-like, but is overtly not an actual human.
Ethereum has a number of popular meme coins, such as Shiba Inu, a blockchain intended largely for fun or outright gambling rather than investing in serious projects and fostering frontier financial technologies. At the same time, it has a handful of rather esoteric cryptocurrency utility projects and decentralized autonomous organizations (DAOs), much like you’d expect from a chain devoted to hardcore technology development, financial engineering, or methodical new experiments in corporate governance.
Yet its high transaction costs make meme coin investing exceptionally painful. Likewise, the same source of friction is a massive drag on for-profit projects, which tend to have a higher need to transact on demand, meaning that they can’t wait for fees to decline.
For other purposes, like minting and trading non-fungible tokens (NFTs) or creating smart contracts, there are plenty of solutions on the chain to choose from. But many of the marketplaces, exchanges, and tools on Ethereum have only rudimentary feature sets or sketchy credentials.
Of course, the Ethereum blockchain itself can’t fully control which projects use it or how well they work.
But for a chain’s native token to be a good investment relative to other options, it helps if there’s a critical mass of users within at least one (large) community that’s loyal to where their projects are deployed. And for this chain, the various frictions are an impediment to that critical mass continuing to build, so I don’t regret selling.
