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Comment by spywaregorilla | Hacker News Reader

As someone who doesn't really care about the virtues of crypto, but has a small investment in btc that has grown into several thousand dollars, I'm feeling that if I want some casual investment in crypto I should move it into eth to avoid regulatory risk from bitcoin's environmental cost and tether collapsing and destroying bitcoin's value. I'm sure eth would tumble down with btc for a while but feel it might diverge positively after a while if either of these two threats hit btc? It feels like btc just has a lot more guns pointed at it.

Any opinions on this?

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If your goal is to avoid regulatory risk, you might consider taking seriously the possibility of avoiding cryptocurrencies entirely.

The prices of all the top cryptocurrencies have been heavily correlated since the crash in early 2018. You aren't avoiding any of the risk by holding ETH instead of BTC.

DeFi, generally on Ethereum, would be severely impacted from a Tether fallout. Curve’s largest pool, which is the basis for a lot of yield in other services, can be drained to zero if Tether has even a minor sustained depeg. Tether backed loans at a variety of services would likely default sending liquidation events across all the major tokens on Uniswap and Sushi. Bitcoin wouldn’t do great but it is insulated from a DeFi ecosystem collapse that would undermine Ethereum’s value.

As for regulatory risk, I think privacy coins are the biggest target.

There is less of a liquidation risk regarding tether precisely because the major lending protocols (Maker, AAVE, Compound) do not let you use tether as collateral. You can deposit it to lend to others. And borrow it against other assets. But you cannot directly borrow against USDT as collateral.

Ive moved everything to eth over the last few months. It retains the ability to store value like btc, but fuels a defi ecosystem that is providing an automated financial services economy. As traditional financial institutions dive into the crypto assets, im thinking they can feel more comfortable about eth investments due to how they can compare defi to cefi and traditional finance and have good tools for valuing the asset. Wall street loves recurring revenue.

Comparing eth to other smart contract platforms, eth has strongest ecosystem of block chain developers, and the most mature smart contract tooling.

As for regulatory risk, it seems to me like pulling off a really attached bandaid, it will shock and hurt, but ultimately regulation allows a framework for traditional finance to bring crypto based products to its consumers without stepping into legal issues.

I am concerned that regulation around tether and stable coins could be very hurtful to anyone who is currently invested. For less risky investors, I would consider waiting until regulatory murkyness has been clarified.

Tether likely impacts eth as much if not more than Bitcoin considering it 1) runs on Eth and 2) Eth tends to be the financial product crypto of which tether is the largest element.

Ehhh. I'm pretty close to an Ethereum maximalist, but I'd actually say ETH is more at risk than BTC for these types of downside risks.

For one BTC is just bigger with more people widely invested in it, and more name recognition. That's going to constrain government action from interest groups and the public perception of overreach. If Biden announced tomorrow that he was going to "shut down Bitcoin", a lot of conservatives, and even moderates, would have a knee jerk opposing reaction. If he said he was going to "shut down Ethereum", most people would be like "what the hell is Ethereum?"

Two, Ethereum's smart contract system allows a lot more shenanigans. Remember, Tether runs on top of Ethereum, not Bitcoin. As does almost all of DeFi, which is starting to piss off financial regulations. Bitcoin doesn't come with all the baggage attached. 99% of it is just people transferring Bitcoin to one another. That makes its systematic risks pretty self-contained.

I'm not sure ETH would be any better protected from tether's collapse. If anything it might be more affected since a fair number of defi projects use it.

I got out at the previous peak of 20 k. When banks could short it.

Before the pandemic, it went to 4k. And I forgot to do it again. I would have sold everything by now, i don't think it will hold, just like it didn't hold in the past ( pre-covid).

DeFi is the future so I would say ETH is a better/safer investment than BTC in the long term. The only thing Bitcoin is useful for is doing transactions which any other cryptocurrency is also capable of. Also, consider Cardano. It's proof-of-stake already (so no environmental impact), and it's about to get smart contracts implemented in a few months.

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