Cryptocurrency Ethereum (CCC:ETH-USD) is on a tear lately, and looks to be the real deal in a highly speculative sector.
Ethereum, also known as Ether, has recently broken above $3,000 to record highs in a rally that has led the cryptocurrency’s price to triple year-to-date. As of the morning of May 5, 2021, ETH is priced around $3,350.
Bitcoin (CCC:BTC-USD) remains the largest and most widely held cryptocurrency available today. However, Ethereum’s current run comes as a growing number of crypto enthusiasts bet that its underlying technology will be of more use in a decentralised financial (DeFi) system than other digital assets, including Bitcoin.
Many investors who are well-versed in cryptocurrencies now see Ether as the future, with many expecting it to eventually supplant Bitcoin as the most widely held digital coin.
In recent months, there have been a number of improvements made to the Ethereum blockchain that make it more useful, most notably when it comes to DeFi. Ether bulls claim that its blockchain technology is hands down the best and most important when it comes to DeFi.
The launch of several Ethereum exchange traded funds (ETFs) in neighboring Canada, and surging demand for Ethereum wallets used to transact and store non fungible tokens (NFTs) have also helped to push the price of Ether to its current level. To be sure, Bitcoin is still the world’s biggest cryptocurrency with a market capitalization of more than $1 trillion and a current price of around $57,000, but cryptocurrency watchers say a sea change is underway and that Ether could become the dominant digital coin moving forward.
The Real Deal
While cryptocurrencies have been growing in popularity and gaining mainstream acceptance this year, the market for digital coins and assets is still in its infancy and has a long way to go before it can be considered mature and stable. Right now, Bitcoin and Ethereum are the two biggest, most established and widely held cryptocurrencies. There are a few others, such as Litecoin (CCC:LTC-USD) and Bitcoin Cash (CCC:BCH-USD), that can also be considered legitimate.
But the cryptocurrency sector remains rife with speculation and companies that cannot be considered legitimate. In February of this year, there were more than 4,500 cryptocurrencies available around the world, the vast majority invented by people in their basements. That’s up from just 66 cryptocurrencies back in 2013. And many cryptocurrencies are no more than a joke, as evidenced by Dogecoin (CCC:DOGE-USD), a cryptocurrency started by engineers from IBM and Adobe as a gag, but that has grown to have a market capitalization of more than $80 billion.
In this ocean of speculation and fraud, Ether stands out for having real underlying blockchain technology that can help to facilitate decentralized finance. Ethereum is the real deal.
Higher From Here
Investors who are bullish on Ether expect the cryptocurrency to continue running higher from here, with some people forecasting that its price will be above $5,000.00 by year’s end. Some people are going so far as to predict that a decentralized Internet (Internet 2.0) will be built on Ethereum’s blockchain technology, and that Bitcoin, with an outdated and less elegant blockchain technology, will be left in the dust. The growing popularity of NFTs, which use Ethereum’s underlying technology, also bodes well for its future, say proponents.
While there does appear to be momentum behind Ether, skeptics continue to denigrate cryptocurrencies as nothing more than a speculative bubble. At the recent shareholder meeting of Berkshire Hathaway (NYSE:BRK.B), Vice-Chairman Charlie Munger called the rise of cryptocurrencies such as Ethereum “disgusting” and said the entire digital coin sector runs “contrary to the interests of civilization.” Other critics have been even more harsh in their assessments.
Buy A Small Stake In Ether
Cryptocurrencies are tough to evaluate.
On one hand, the market for digital coins remains immature, speculative and ripe with impostors. On the other hand, cryptocurrencies such as Ethereum and Bitcoin have outpaced the stock market year-to-date and show no signs of slowing down. The fact that Ether has legitimate technology propping it up and can be used for real, tangible solutions sets it apart from other digital assets such as Dogecoin. For this reason, investors could take a small position in Ethereum to give themselves exposure to its growth.
Just be ready to exit that position quickly if the entire cryptocurrency market implodes, as some people anticipate.
On the date of publication, Joel Baglole held a long position in BRK.B.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.