Ether, the world’s second largest cryptocurrency by market capitalisation, has lurked in the shadows of bitcoin for most of its short life, but this weekend cracked $1 150, impelled by what some analysts are calling the bitcoin “slingshot effect”.
Bitcoin started 2020 at around $7 200 and smashed through its previous all-time high of $20 000 on December 17, racing on to a new high of $34 300 over the weekend. It has since given up some of its gains but is still up an astonishing 328% over the last year.
Impressive as this is, it pales alongside ether, which gained 662% over the same period.
“There is definitely something of a slingshot effect happening with ether, though if you look at its performance over the last year, it far outstripped bitcoin,” says Sean Sanders, CEO of crypto investment platform Revix.
Ether’s latest price surge above $1 000 puts it within striking distance of its previous high of $1 433, reached in December 2017.
Ether price in USD
Ether has yet to attract the kind of large-scale institutional investment that propelled bitcoin to new highs in the last month, but that cannot be far off. Data provider CryptoCompare shows trading volumes in ether surpassed that of bitcoin in the last week, as crypto investors appear to be on the hunt for the next big thing.
Trading volumes of the Top 10 cryptos
Coindesk also reports that sell-side liquidity seems to be drying up, which should provide support for both bitcoin and ether prices in the near term. After reaching record highs in December 2017, bitcoin and ether were subject to a savage sell-off of 84% and 95% respectively. Sanders says while a correction in prices may be on the cards, it’s unlikely to be anything like what happened in 2018.
“What’s different this time for bitcoin is the level of institutional support it is now getting, so any correction in price will be met with buying pressure. What’s driving ether’s price is fundamentally different to bitcoin, which has established a store of value narrative like gold.
“Ether is the cryptocurrency of the Ethereum blockchain, which acts like oil powering the network, and has a faster growth of users than the bitcoin blockchain,” says Sanders.
“Ethereum is where most of the activity around Decentralised Finance (DeFi) is taking place, and this is where some really exciting developments are occurring – for example, the ability to lend, borrow and earn a return on cryptos.”
Andrew Keys, managing partner at Digital Asset Risk Management Advisors, argues in Coindesk that upgrades to the Ethereum network will catapult the ether coin it to $2 000, while bitcoin will surge to $50 000. Just as the world has come to understand the intrinsic value of bitcoin as “digital gold”, so will the world come to understand Ethereum as “digital oil” because of its capacity to change the way we transact via digital contracts, says Keys. “Smart contracts” written on the Ethereum network allow transactions to take place between parties without an intermediary.
“Ethereum allows contracts to go truly digital. The digitisation of the contract is the digitisation of the global economy, which has been valued at an estimated $270 trillion (compared to the $18 trillion market cap of gold that bitcoin stands to capture).
“Ethereum has the opportunity to upgrade entire economies, not just one asset class,” writes Keys.
Ether has yet to receive the kind of investment attention showered on bitcoin by the likes of MicroStrategy, Square and others. The bitcoin derivatives market is relatively well developed, with futures and options available through the Chicago Board Options Exchange and other exchanges. The financial ecosystem around ether is less developed, but this is fast changing. The Chicago Mercantile Exchange will launch Ethereum futures in February, which in turn paves the way for an Ethereum exchange-traded fund.
Other crypto coins to watch in 2021 are Litecoin, Bitcoin Cash ABC and Bitcoin Cash SV, all of which have “gold-like” supply properties due to the hard cap on their issuance.
“Despite the tremendous gains in the cryptocurrency market in 2020, we are still at the birth of an entirely new financial revolution, equivalent to the internet in 1995. It still has a very long way to go,” says Sanders.
Bitcoin price in USD