Ethereum (CCC:ETH-USD) is one of the most-watched cryptocurrencies after Bitcoin (CCC:BTC-USD). At this writing, ETH is hovering at $1,889, up more than 600% in the past 12 months. Put another way, the proverbial $1,000 invested in Ethereum last year would now be worth about $7,000.
In early February, CME Group (NASDAQ:CME) introduced futures contracts in Ether, the cryptocurrency of the Ethereum network, which started in 2015 as a programmable blockchain. Such futures contracts are legal agreements to buy or sell Ether at a predetermined price at a later date.
InvestorPlace contributor Vivian Medithi covered the topic earlier this month and highlighted, “Analysts expect to see increased institutional investment in ether as a result of the introduction of futures contracts, bolstering the recent bullish run in Ethereum.”
What’s Fueling Ethereum Value
The CME Group’s move comes about three years after its December 2017 launch of Bitcoin futures. At the time, BTC was around $18,000. Now Bitcoin is hovering above $50,000. However, the run-up in BTC has not been smooth. Therefore, if history is any guide, we can expect volatility in the ETH price, too.
Ethereum’s market capitalization (cap) currently stands around $217 billion. By comparison, Bitcoin’s market cap is over $966 billion. So, what is driving the value increase of Ethereum and cryptocurrencies as a whole?
As recent research led by Seoung Kyun Kim at the University of Illinois at Urbana-Champaign highlights, “The flexibility offered by Ethereum’s smart contracts has attracted many users, developers, and investors, leading Ethereum to become the second largest cryptocurrency.”
Therefore despite short-term volatility, given investors’ risk appetite in cryptocurrencies, it is likely that Ethereum will see $2,000 sooner than later.
Underlying Blockchain Interest Growing
Ethereum is a blockchain-based software platform. This technology is advanced, and has many uses beyond the storing and recording of transactions. Ether is the actual cryptocurrency that is bought and sold, and is what the Ethereum software is built around. Ethereum is currently the most actively used blockchain. This is a main reason why some think Ether could hold tangible value, as it is based on blockchain technology.
According to the Ethereum Foundation, Ethereum is: “a community-built technology behind the cryptocurrency ether (ETH) and thousands of applications you can use today… Ethereum builds on Bitcoin’s innovation, with some big differences. Both let you use digital money without payment providers or banks. But Ethereum is programmable, so you can also use it for lots of different digital assets — even Bitcoin!”
Another difference between a coin like Bitcoin and Ethereum is the supply and the volume in circulation. Bitcoin has a limited supply of 21 million, with 2.3 million currently left to mine. Ether has over 100 million in supply, but currently has no fixed number, meaning more can be produced. There have been talks of introducing a limit but nothing at this time is announced. Thus, the flexibility of supply is a feature that appeals to some investors.
Also, many celebrities have announced they have large shares in various cryptocurrencies. People with powerful voices have pumped these cryptos, such as Bitcoin and Ethereum. Even coins with a relatively small tangible value or purpose — such as Dogecoin (CCC:DOGE-USD) — have been caught up in this movement. Furthermore, Tesla (NASDAQ:TSLA) announced the purchase of $1.5 billion in bitcoin.
In addition, around the world, national debt levels are piling up. Meanwhile, interest rates are record low levels. Therefore a large number of investors are looking at cryptocurrencies as a store of wealth, similar to that offered by gold.
The Bottom Line on Ethereum
As a young and evolving financial asset, the price of Ethereum as well as other cryptocurrencies is volatile. Given the increase in value in the past 12 months, ETH is likely to be choppy in the short-run as some investors may decide to ring the cash register.
Every time I look at a ETH or BTC price chart, I notice continuous peaks and troughs as well as choppiness. In other words, daily swings are wide and the direction of the next move is usually surprising.
Yet, the past year has witnessed more individuals and firms bring cryptocurrencies into their lives and businesses. Now, these digital currencies are accepted by more people. As a result, I am expecting the growth in cryptos to continue in general.
There is growing consensus that a network like Ethereum and a coin like Ether could be the long-term future of transacting. Many analysts believe ETH can test the $2,000 mark soon. So as a small allocation to a portfolio, it could be worthwhile.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.