Other cryptos are still trying to recover from the “flash crash” on Apr 18. But, Ethereum (CCC:ETH-USD) has bounced back without skipping a beat. Why have investors bid it back up, when even Bitcoin (CCC:BTC-USD) remains down from its all-time highs?
At first, you may chalk it up to this crypto’s high exposure to the NFT, or non-fungible token trend. But, with talk of the bubble in the emerging digital asset class starting to pop, it’s hard to say that’s what behind the continued enthusiasm for Ether (Ether is what the crypto itself is called; Ethereum is the network it runs on).
So, what’s likely the main factor? The anticipation of Ether continuing to pull away from the rest of the “altcoin” pack. Also, perhaps the belief that it will eventually supplant Bitcoin as the most valuable crypto, an event referred to as “the flippening.”
The speculation helping to drive it higher may suggest this is a bubble waiting to burst. Yet, assuming the crypto market remains strong, and this crypto’s functional bona fides continue to bolster the bull case, the stampede into Ethereum by retail and institutional investors could carry on in the near-term. Although possibly at a more gradual pace.
Ethereum: Both Retail and Institutional Money Keeps Flowing in
Since last Fall, there’s been a considerable inflow of capital into both Bitcoin, as well as into “altcoins” like this one. But, based upon its current market capitalization, Ethereum has pulled well ahead of the rest of the pack.
According to CoinMarketCap, as of this writing, the total value of all outstanding ETH stands at around $296.9 billion. Scroll down the list of most valuable cryptos, and except for Binance Coin (CCC:BNB-USD), which has a market cap of around $86 billion, none of them are even within striking distance of cracking the $100 billion threshold.
It’s not just retail investors who are buying Ethereum hand over fist. Institutional investors, so-called “smart money,” are also moving into it in a big way. Sure, altcoins in general are attracting more institutional interest as of late. Yet, given it has established itself as the silver to Bitcoin’s gold, it’s attracting more attention from “smart money” than most.
Like I mentioned above, this mad dash of inflows may suggest things have gotten overheated. But, the enthusiasm for this crypto is not purely speculative. Given its strong functionality, Ethereum will likely stay on its current trajectory.
This Crypto’s Utility Will Help to Sustain its Momentum
With some altcoins that have skyrocketed, like Dogecoin (CCC:DOGE-USD), speculative frenzy has been the main driver. But, while it’s been key in the continued upwards surge, ETH has another factor working in its favor.
That would be its utility. As InvestorPlace’s Tezcan Gecgil discussed April 15, among the many blockchain platforms, the Ethereum protocol most widely used. Namely, due to its technological edge. This has been the key factor in Ethereum being the primary platform for storing/recording of NFT transactions.
But its potential goes way beyond NFTs. Decentralized finance, or DeFi, continues to gain critical mass. As more and more financial transactions become decentralized, it’s platforms like Ethereum that stand to gain the most. In turn, its utility, perhaps stronger than that of Bitcoin, may enable it to hold onto its recent gains, and continue to move towards higher price levels.
Yet, that doesn’t mean this will be the best performing crypto going forward. While ETH is still far away from BTC in terms of total value, it may take some time before we approach “the flippening.” In the meantime, other cryptos, smaller in size, with more room to run and may generate more outsized gains.
The Bottom Line: Stay Bullish
Even after tripling in value since the start of 2021, this crypto may continue to trend higher. Retail and institutional investors continue to dive in. And, as it becomes clearer it will be the leading platform when it comes to decentralized finance, there’s more than naked speculation backing up the enthusiasm.
That’s not to say we’ll see it double, or even triple, again in the short-term. Much less come close to supplanting the top dog, Bitcoin. Gains in the coming months may be more gradual. Other cryptos may have more of a shot at seeing an outsized breakout.
In short, you may be a bit late to the party. But, with continued inflows, coupled with strong utility, there’s enough in play to keep ETH on its current trajectory. Barring an overall correction in the crypto market, all signs point to staying bullish on Ethereum.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. He did not hold (either directly or indirectly) any other positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written single stock analysis since 2016.