Ethereum’s ether was among the biggest losers in the cryptocurrency crash that occurred earlier this week. Since Wednesday, the cryptocurrency has lost approximately 23% of its value, shedding a substantial portion of gains it eked out during a decline in bitcoin’s price.

On an overall basis, ether is down by 84.3% from its peak during the second week of January this year. Ether’s ebbs and troughs have mostly mirrored those of the general cryptocurrency market. But the crash in its price this time around has brought out not only bears but also critics who are questioning the basis for increase in its price and its utility within the smart contract ecosystem. If their theories turn out to be right, then ether could be in for a rough ride ahead.

Why Ether Might Be A Shitcoin

In his company’s trading newsletter, Arthur Hayes, CEO of BitMex – a Hong Kong based trading platform, refers to ether as a “shitcoin”. “The real profit in 2017 was made by ether holders, shitcoin projects, and promoters. The seed capital for many of the venerated crypto hedge funds emanated from outsized returns on holdings of ether and token projects,” he writes.

His thesis is that initial coin offerings, which enable entrepreneurs to raise capital without regulatory checks, on ethereum’s platform attracted funds from traditional venture capitalists interested in capitalizing on the crypto craze. (According to estimates, ICOs raised $5.6 billion in 2017. They have already raised $6.3 billion this year). The increase in funding was beneficial for ether’s circulation because it functions as “gas” within ethereum’s ecosystem. This means that each transaction on ethereum’s blockchain requires a certain amount of ether. Transactions cannot occur if the application or smart contract does not have enough ether in its account.

The funds fed into a mutually-beneficial cycle of rising valuations and additional capital. As ether’s price rose, the number of ICO tokens on ethereum’s platform multiplied.

But there was a problem.

Hayes writes that crypto hedge fund investors brought a venture capitalist’s mentality to crypto markets. In venture capital, asset valuation is largely based on intangibles, such as product and team, not considered in financial markets. As a result, they did not cut losses when crypto markets fell.

Hayes predicts that ether’s price will collapse from its current 3-digit valuation to that of a “2-digit shitcoin”. The cryptocurrency was last seen at those levels in May 2017.

The (Non)Utility Of Ether

Jeremy Rubin, a bitcoin core developer and cofounder of the MIT digital currency initiative, has a more fundamental critique of ether. According to him, the collapse of ether is inevitable. His case rests on the (non)utility of ether within ethereum’s ecosystem. In a TechCrunch post, Rubin argues that the economic abstraction of ether within ethereum’s ecosystem is not necessary.

The imperfections and complexities in the current system to calculate fees in ethereum’s ecosystem are generated from four problem areas. The first one is absence of software support for application developers to determine their token’s exchange rate with ether for transaction fee payment. Should they establish a 1:1 parity with ether for their token or change it based on market prices?

The second problem is related to the first in that the volatility of cryptocurrency markets exacerbates the problem of establishing a token value exchange rate. The price of ether and ERC20 tokens changes constantly and affects transaction prices on ethereum’s blockchain since payment for these is made in ether. The volatility further complicates matters by making it difficult to calculate transaction costs in advance for application developers.

Rubin also suggests a method for non-token contracts or contracts in which transactions occur without ether. “To ensure liquidity between users and miners with different assets they would pay or accept fees with, a user can simply issue multiple mutually-exclusive transactions paying with different assets,” he writes. Finally, he makes the case for a Heterogenous Proof of Stake (HD-POS) with a system of consensus that ethereum’s blockchain will eventually adopt. A weighting for each asset or token held within ethereum’s blockchain could possibly help miners reach consensus.

But there is a problem with Rubin’s approach. A glance at the current listing of tokens makes the idea seem impossible. In a world with multiple tokens, ether could very well emerge as the connector between different tokens. It would also hinder innovation within ethereum’s ecosystem limiting funds only to those applications, which have raised sufficient capital and gained a favorable rating. The flip side to this approach is that it would ensure quality in ERC 20 tokens.