Citadel's Ken Griffin Sees Ethereum Surpassing And Replacing Bitcoin

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by Tyler Durden
Wednesday, Nov 10, 2021 - 07:22 PM

Back in May, when Goldman Sachs initiated coverage of crypto, it was mostly favorably inclined toward bitcoin which it nonetheless called a "one trick pony" and saw limited upside, but it was ethereum that stole Goldman's heart. The reason: while Goldman said that bitcoin is mostly a store of value and nothing else, it said that over time, "the decentralized nature of the network will diminish concerns about storing personal data on the blockchain." As a result, "a blockchain platform like Ethereum could potentially become a large market for vendors of trusted information, like Amazon is for consumer goods today." And just to clarify what it means, the bank explained:

Ethereum can also be used to store almost any information securely and privately on a decentralized ledger. And this information can be tokenized and traded. This means that the Ethereum platform has the potential to become a large market for trusted information. We are seeing glimpses of that today with the sale of digital art and collectibles online through the use of NFTs. But this is a tiny peek at its actual practical uses. For example, individuals can store and sell their medical data through Ethereum to pharma research companies. A digital profile on Ethereum could contain personal data including asset ownership, medical history and even IP rights. Ethereum also has the benefit of running on a decentralized global server base rather than a centralized one like Amazon or Microsoft, possibly providing a solution to concerns about sharing personal data.

No surprise then that last weekend, the bank forecast that ether could hit $8,000 by year end, as a result of the token's remarkable correlation with 2 year inflation swaps which, as everyone knows, are only going up and to the right.

It's not just Goldman that has a preference for ethereum over bitcoin. Earlier today, comments from one of the most powerful people in all of finance, Citadel CEO Ken Griffin, about Ethereum’s dominance over Bitcoin are attracting even more attention to the second-largest cryptocurrency, which is outperforming many others this year by wide margins.

Griffin, who like Jamie Dimon was a noted crypto skeptic in the past, said Wednesday at a conference that the crypto space could be disrupted by Ethereum’s blockchain.

"We’re going to see Bitcoin be replaced conceptually by the Ethereum’s blockchain", he said at the DealBook conference. “Replaced conceptually by the next generation of cryptocurrencies that will have the benefits of higher transaction speeds, lower cost per transaction. Perhaps people will start to think about how to deal with security and fraud prevention better.”

In the coming year, Ethereum is set for a historic transformation to Ehtereum 2.0, shifting from a Proof-of-work concept to a Proof-of-stake, whose energy consumption transaction speeds and costs will be a fraction of the current ones, while also getting the blessings of the ESG community in the process. Heading into the Ethereum 2.0 transition, pundits expect the price of the token to soar.

Griffin added he isn’t worried he missed out on crypto. “The train is, in some sense, still in the station,” he said.

A year-long rally in Ether, which sent the coin up more than 550% for 2021, trouncing Bitcoin’s performance by more than 400 percentage points, gathered momentum toward the end of the summer after a major protocol upgrade which reduced supply increases. 

“People are moving money into other cryptos now -- not just Bitcoin,” said FTX US President Brett Harrison. “That is definitely following this trend of thinking about the future application development happening using crypto.”

Meanwhile, on Tuesday the largest U.S. cryptocurrency exchange, Coinbase, said that during the third quarter, Ether constituted 22% of transaction revenue, outstripping Bitcoin for the first time in trading volumes as well.

“We’re definitely seeing a lot of bullish Ethereum flows,” Juthica Chou, head of OTC options trading at Kraken, said on Bloomberg’s “QuickTake Stock” broadcast. “Ethereum captures the tailwinds of Bitcoin -- on top of that, they had the protocol upgrade in August, which burns Ether.”

At the conference, Griffin commented further on cryptocurrencies, saying his firm doesn’t trade crypto because of regulatory uncertainties.
“I wish all this passion and energy that went to crypto was directed towards making the United States stronger,” said Griffin. “Let’s face it -- it’s a Jihadist call that we don’t believe in the dollar. I mean, what a crazy concept that is,” he said, reiterating similar comments he had made about crypto just a few weeks back.

“When you have to value cryptocurrencies, what is the basis that you use for valuation?” Griffin asked. “It really comes down to: Will someone pay me more for it tomorrow?”

Actually that's not only simplistic, it's wrong: what it really comes down to is will central banks print more fiat tomorrow than today. The answer is clearly yes, and until that changes - and it won't - someone will always pay more for cryptos tomorrow than they are worth today.

Some other things Griffin discussed:

  • Griffin said inflation and rising prices were no longer something that could be ignored. “The theory that this is transitory is starting to get long in the tooth,” he said. That is also affecting the stock markets, which by Mr. Griffin’s reckoning have become “frothy,” primed to overreact, particularly in stocks like Tesla that have experienced high volatility.
  • The financier defended payment for order flow, in which market makers — such as Citadel Securities — pay online brokerages like Robinhood for the right to process their customers’ trades. While the practice has been criticized for potentially leading to conflicts of interest, Griffin said that it had helped lead to lower trading costs for individual traders and that he opposed potential new regulations. “Are we going to go back to re-regulated markets and taking back the competition that has allowed Americans to save so much money when trading?” Doing so, he argued, would be “a tragedy.”
  • Griffin, a billionaire, opposed raising taxes, saying it would discourage innovation in America, citing Tesla’s Elon Musk as an example. “We don’t want tax policy to drive great entrepreneurs like Elon out of their seats,” he said.

The hedge fund manager said his remarks likely would lead to hate mail in his inbox and on Twitter.