Is it hype that’s sending Ethereum (CCC:ETH-USD) to the moon right now? To some extent, yes. Bitcoin (CCC:BTC-USD) is struggling to get back to its own high-water mark, as crypto investors continue to cycle out of it and look for more profitable opportunities in leading “altcoins” like this one.
However, that’s not the whole story. That is, it’s not just speculative fever that has fueled the parabolic moves in Ether (what the crypto itself is called). Another reason behind the surging prices is the growing use of this crypto’s platform in decentralized finance (DeFi) applications.
In other words, while BTC is considered to be a great store of value, the Ethereum network may give ETH greater utility. That will help propagate its use in transactions.
So, what does this mean for prices going forward? Sure, with its stunning moves as of late, it may seem a bit scary to dive in now. It makes sense to be fearful of buying near the top and risking possibly holding the bag.
Yet, with crypto trends on its side, the runaway rally for Ethereum may not be over. We may be a long time away from “the flippening” — when this coin becomes more valuable than BTC. However, a continued move toward $4,000 may be just around the corner. Today, ETH trades for around $3,412.
There’s More Than Hype Fueling the Ethereum Rally
Ethereum is not alone in being a crypto that’s surging while BTC trades sideways. Dogecoin (CCC:DOGE-USD), the “meme” crypto that’s made serious money for those who got in early, is continuing its own parabolic rise. But, comparing this more established coin to that “jokecoin” is not apples-to-apples.
Why? Namely, as I mentioned above, it’s not just speculative hype fueling the rally in ETH. The superior levels of utility for this coin in DeFi transactions is helping to prop up its value.
Sure, Mark Cuban may have just made the case why Dogecoin could eventually have meaningful utility. Yet, trying to build a bull case around its functionality is like grasping at straws. Even now, the coin hasn’t caught on as a method of payment. So, it’s clearly not DOGE’s fundamentals that are driving its jaw-dropping rise. Instead, it’s the fact that retail speculators are falling in out of FOMO, or fear of missing out.
Yes, retail FOMO-based buying is playing a role in Ethereum’s uptick. But, what’s in the driver’s seat is the growing acceptance of the crypto as an established medium of exchange. Dogecoin’s prices may get more insane before it’s all said-and-done, but ETH and its platform stand to become one of the key pillars of the blockchain economy.
Will Prices Correct in the Near-Term?
It’s easier to build a long-term bull case for Ethereum than it is for more speculative, meme-driven altcoins. However, that doesn’t guarantee a pullback can’t happen in the near-term. After surging more than 61% in the past month, some sort of correction is likely in the cards.
How much of a correction? We may see a 15% to 20% snap-back, like the one experienced during the crypto “flash crash” last month. That is a brief retreat back below $3,000. Yet, if this does happen in the coming days (or weeks), don’t take this to mean the party’s over for Ethereum.
Instead, view it as an opportunity to enter a long-term position, if off-the-charts enthusiasm takes a temporary breather. Again, the increased usage of its platform points to the price of ETH continuing to rise over time. Not only that, but institutional investor trends continue to be on its side as well.
As InvestorPlace’s Muslim Farooque noted on May 4, continued inflows from institutional investors will help support higher prices here as well. According to Cointelegraph, institutional managers now hold $13.9 billion worth of Ethereum. Plus, that number continues to grow. So, this embrace of ETH as a store of value on par with Bitcoin could continue to narrow the spread between their respective market values.
Bottom Line: Despite Recent Rally, ETH Still Has Room to Run
That narrowing spread between the market capitalization of Bitcoin (around $1.074 trillion) and the market cap of Ethereum (around $394 billion) asks a question: could we see “the flippening” happen sooner than expected?
It’s possible. However, we may still see a brief correction or pullback in the meantime, especially after the incredible run this crypto has been on in the past few weeks.
But like I said, even if we see a correction, that doesn’t mean that Ethereum flipping the script is a long-shot. In the coming months — if BTC remains flat and ETH usage in DeFi transactions increases — this name may have a chance to become the largest crypto by market cap sooner rather than later.
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, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.