- James Wang is a crypto investor who covered artificial intelligence for Cathie Wood’s ARK Invest.
- In an interview, he shares how he first invested in crypto and breaks down his bull case for Ether.
- Wang also lays out a valuation framework that explains how Ether could eventually reach $40,000.
- See more stories on Insider’s business page.
James Wang has always been a free spirit when it comes to technology.
In 2015, while working for chip producer Nvidia, he heard Cathie Wood, the founder of Ark Invest, speaking on Bloomberg Radio. He reached out to Wood and shortly after joined her then-emerging boutique asset manager as an analyst for the now $6.6 billion ARK Next Generation Internet ETF (ARKW).
In the early days, Wang worked with Christopher Burniske, who initially covered enterprise software for ARK and then became its blockchain products lead from 2014 to 2017.
“The overwhelming narrative was that this is probably still a scam,” Wang said. “And if it’s not a scam or a Ponzi scheme, the government is in no way going to let this happen, they’re going to shut it down so anyone would be very foolish to invest in this kind of stuff.”
Wang was hesitant at first. Steeped in the traditional school of investing only in securities that produce cash flow, he did not want to step out of his circle of competence.
But Burniske, now a partner at venture capital firm Placeholder, started to convince him with “well-thought-out arguments” to many of his questions. Eventually, it was a serendipitous tweet that he came across while vacationing in Sicily, Italy that prompted him to start buying.
“It was not even a Bitcoin tweet, it was just a fortune cookie tweet that said the world is very chaotic and uncertain and you can never gain a full understanding of the world, so embrace uncertainty and don’t be so dogmatic,” he said.
In true free spirit fashion, Wang decided there and then that it was okay for him to invest in something that he didn’t yet fully understand.
Bearing potential risks in mind, in 2016, he bought a “reasonable” amount of Bitcoin (BTC) at about $600 and Ether (ETH) at around $10. “I didn’t really sell until the 2018 peak,” he said. “I took some off the table, but generally I’ve been basically just holding.”
The bull case for Ether and the Ethereum network
As Ether hit a new all-time high of just above $3,300 on Monday, Vitalik Buterin, the 27-year-old creator of the Ethereum network, becomes the latest entrant into the crypto billionaire club.
Wang, who has always been more biased toward Ether because of his tech background, saw the ascent of the second-largest cryptocurrency coming.
In his view, Ethereum, which was created in 2015 due to the core Bitcoin developer community’s rejection of Buterin’s proposal to add new features to the blockchain, is specifically designed to be a programmable computing platform that can be constantly upgraded and improved.
Meanwhile, Bitcoin is similar to a finished product or a fixed commodity that’s waiting for adoption. (Investors have compared Bitcoin to a phone that allows calls and texts, and Ethereum to a smartphone on which other applications can be built and used.)
“Bitcoin has good reasons not to constantly evolve and change because its product definition is to be a reliable form of value storage,” he said. “Whereas Ethereum’s product definition is to fulfill all these other tasks. As a consequence, it wants to be an evolving platform that adds features.”
Just this year so far, Ethereum has already contributed to the boom in decentralized finance projects and non-fungible tokens. As the Ethereum network becomes more congested due to a frenzy of activities, users can expect even more new features and upgrades coming.
For example, a planned change to the Ethereum network this summer is called (Ethereum Improvement Proposal) EIP-1559, which will reduce the number of Ether tokens outstanding and cut the fees paid to miners. Additionally, Ethereum’s core algorithm is also expected to switch from proof-of-work to proof-of-stake.
“It has a breathing, living future. As a result of that, it addresses more and more use cases,” Wang said. “And it basically attracts expansive total addressable market as a product.”
How Ether could reach $40k
Now that Ether’s $383 billion market cap has surpassed even that of Bank of America, investors cannot help but ponder where the cryptocurrency could go from here.
For Wang, the best valuation framework for Ether has already been laid out by Arthur Hayes, the co-founder of 100x and former chief executive of crypto exchange BitMEX. Hayes, who is in legal trouble with the US government, made his case in an article titled “Yes … I Read the Whitepaper.”
The article hinges on the two primary use cases created by Ethereum in the last couple of years – DeFi and NFTs. Between the two, DeFi, which refers to software-automated financial activities such as lending and trading without human employees as the middlemen, is seen as the crypto space with the most potential to replace the global financial services industry.
Hayes examined the $3 trillion global banking and auditing industry, which arguably can be done more efficiently with software, Wang said.
“So that’s $3 trillion of existing revenues up for grabs,” he added. “If Ethereum captures just 1% of that economic revenue, Ether would be around $40,000.”
Wang acknowledges that there could be more nuanced dynamics at play should the financial system becomes more efficient via DeFi, but he believes that even a measly amount of adoption of DeFi could drive Ether up at least 10 times from its current levels.
“If you move to a more efficient system, the costs you charge your customers should decline, so the top-line total addressable market as it exists today should shrink in absolute terms since it’s more efficient now,” he said. “But also if you’re programmable and more efficient, you’re going to create entirely new use cases.”
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