For most investors, the crypto world is synonymous with Bitcoin (CCC:BTC-USD). However, many cryptocurrencies, perceived to be playing second fiddle to Bitcoin, have outperformed the asset. For example, Ethereum (CCC:ETH-USD), the second-largest digital asset globally, has grown over 1,400% in the past 12 months. On the flip side, Bitcoin has grown over 500% in the same period. Ethereum, with its updated proof-of-stake platform, has boundless potential to be worth several times more over the long term.
The combined valuation gap between Bitcoin and Ethereum is over $600 billion. Closing the gap for Ethereum and other cryptocurrencies is nothing short of a herculean task. However, where Ethereum can gain the upper hand is its usefulness, by working on the robustness of its platform. The update to its network will cut down on supply while mainstream adoption kicks into high gear. If these trends continue, Ether’s market value could come toe-to-toe with the behemoth that is Bitcoin. With that being said, let’s dive a little deeper into the recent developments and outlook of crypto.
Institutional investors have started adopting Bitcoin like never before, and other cryptocurrencies are following suit. Ether has witnessed in excess of $4.2 billion capital inflows in the first quarter this year. Grayscale has been at the top of the heap and has invested more than $43 billion in crypto.
In February this year, more institutional investors poured their money into Ethereum than ever before. That has a lot to do with the Ethereum’s 360% increase in value since the start of the year. Increased investments by institutional investors will continue to push the price of Ethereum’s price higher for the foreseeable future.
Moreover, the new update to the platform will prove to be one of the perfect catalysts for its price. This is because the changes will take away some of the Ether tokens each time they fuel transactions. As supply decreases and demand increases, higher Ether prices should be expected.
Ethereum 2.0 Update
The Ethereum 2.0 update began to roll out on Dec. 1, 2020, and is expected to continue this year, introducing major changes to the Ethereum platform. The platform will transition from a proof-of-work to a proof-of-stake system. Staking is essentially a process that involves depositing tokens and validating the activity through software.
Typically, cryptocurrencies enter the market when miners solve a proof-of-work algorithm. However, with the new update, a new Ethereum will enter the market through volunteers willing to stake their tokens. In many ways, the solution is more sustainable and secure. For example, to conduct a 51% attack on the network, one must have 51% or more tokens instead of just having a majority of processing power.
Moreover, Ethereum’s scaling solution involves using shard chains that split the network across 64 chains. This increases the processing capacity by roughly 64 times. However, its detractors would be right in saying that it is potentially energy-intensive.
Ethereum has done an incredible job of building its platform for developers to build apps. It’s carved a niche for itself in smart contracts used for a variety of functions. There’s also use for it in data storage. As Ethereum continues to improve the utility of its platform, it gains an edge over other digital assets.
Bottom Line on Ethereum
Ethereum has outpaced Bitcoin’s growth as of late and doesn’t appear to be stopping anytime soon. It continues to improve its platform security, sustainability, and overall utility to its user base. Moreover, with the new update, the constriction in supply will push its price higher in the coming months. At the same time, institutional adoption is gathering steam and will have a dual impact on its price. Therefore, it’s a no-brainer to invest in Ethereum at this time.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.