- James Wang is a crypto investor who covered artificial intelligence for Cathie Wood’s Ark Invest.
- In an interview, he shared how he first invested in crypto and breaks down his bull case for ether.
- Wang also laid 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 the 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 emerging boutique asset manager as an analyst for the (now $6.6 billion) Ark Next Generation Internet ETF.
In the early days, Wang worked with Christopher Burniske, who initially covered enterprise software for Ark and then was its blockchain-products lead from 2014 to 2017.
At the time, the demise of the bitcoin exchange Mt. Gox and the bust of Silk Road, the online black market for drugs, had tainted the reputation of the cryptocurrency.
“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. 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 the venture-capital firm Placeholder, started to convince him with “well-thought-out arguments” to many of his questions, he said. Eventually, a serendipitous tweet he came across while vacationing in Sicily 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.
Wang decided there and then that it was OK to invest in something that he didn’t yet fully understand.
In 2016, bearing risks in mind, he bought a “reasonable” amount of bitcoin at about $600 and ether at about $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
In his view, Ethereum, which was created in 2015 because of the core bitcoin-developer community’s rejection of Buterin’s proposal to add features to the blockchain, is 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, Ethereum has contributed to the boom in decentralized-finance projects and nonfungible tokens. As the Ethereum network becomes more congested, users can expect even more features and upgrades.
For example, a change to the Ethereum network this summer called Ethereum Improvement Proposal 1559, or EIP-1559, would reduce the number of ether tokens outstanding and cut the fees paid to miners. Additionally, Ethereum’s core algorithm is expected to switch to proof-of-stake from proof-of-work.
“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 $40,000
For Wang, the best valuation framework for ether has already been laid out by Arthur Hayes, the cofounder of 100x and former chief executive of the 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 past couple of years: DeFi and NFTs. DeFi, which refers to software-automated financial activities such as lending and trading without human employees as 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 could be more efficient 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 acknowledged that more nuanced dynamics could be at play should the financial system becomes more efficient via DeFi, but he said he believes that even a measly adoption of DeFi could drive ether up at least 10 times 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.”