First Mover: what’s next for Ethereum after cryptocurrency reaches historic highs

Bitcoin (BTC), the largest cryptocurrency, fell for the second day in a row, advancing to the lower limit of the $ 34,000 to $ 40,000 range, where prices have been negotiated in recent weeks.

Ether (ETH), the second largest cryptocurrency, backed down after rising on Tuesday to a new maximum price of $ 1,439. (Our Market Moves column, below, analyzes the importance of this milestone. See also the latest edition of CoinDesk’s valid points bulletin, from our colleagues Christine Kim and Will Foxley, exploring the “intrinsic value of ether”.)

The drop in prices is “somewhat disappointing, but also not entirely unexpected, given the focus elsewhere, most notably the transition of power in the United States,” Denis Vinokourov, head of research at leading cryptocurrency broker Bequant.

In traditional markets, European stocks soared and US futures pointed to a bullish opening before President-elect Joe Biden took office on Wednesday in Washington at 12 noon local time (17:00 UTC). Gold appreciated 0.5% to $ 1,848.78 an ounce.

Just a month after bitcoin (BTC) eclipsed its historic record since the bull run three years ago, the lesser-known but more versatile ether (ETH) prices broke a new record on Tuesday: $ 1,439.33, based on CoinDesk prices.

And just as bitcoin’s rapid rise spurred a new wave of high price predictions, analysts and investors in the digital asset markets immediately started speculating on what will come next for ether, the native cryptocurrency of the blockchain Ethereum.

“Ethereum will soon move to the next level,” said trader and analyst Alex Kruger tweeted Tuesday. The points to watch for range from $ 1,500 to $ 2,750, he added.

The race already looks quite impressive. Prices rose almost six times in the past year and increased by 90% in the first weeks of 2021 alone.

Ether is the second largest cryptocurrency in market value, which is becoming increasingly significant compared to real-world analogs – including several major American banks that are at the center of the traditional economy.

The price increase in the past few days has pushed the market value of all the ether in the world to about $ 160 billion. At that level, it is larger than the US financial giants Wells Fargo ($ 135 billion) and Citigroup ($ 132 billion), as well as Wall Street investment bank Morgan Stanley ($ 137 billion).

Bitcoin’s market value is around $ 644 billion, so it’s worth it.

The logical justification for comparing value with banks is that the Ethereum blockchain is the primary location for the development of “decentralized finance”. Known as DeFi, it is a subsector of the cryptocurrency industry, where entrepreneurs are using open source software to build semi-automatic versions of lending and trading platforms on blockchain networks. The theory is that someday they could replace or at least disrupt traditional financial companies.

The comparison is not perfect, since Ethereum works more like a network for companies and developers to rely on, and not like the companies themselves. But the exercise points to the no longer disposable scale of the ecosystem.

This is the key to the value of the ether, since cryptocurrency is often used as collateral in the DeFi protocols, as well as to pay fees on transactions on the Ethereum blockchain.

The guarantee applied to the DeFi protocols skyrocketed to nearly $ 25 billion, from about $ 700 million in early 2020, and even Brian Brooks, who stepped down last week as an interim currency controller in the United States, tweeted Tuesday that DeFi can be “scary for some today, but necessary tomorrow, when some banks start saying what you can and cannot do with your own money”.

According to the industry tracker DappRadar, about 45% of the 238 new decentralized apps in 2020 were designed to run on the Ethereum blockchain. The top 10 apps, known as Dapps, accounted for 87% of transaction volumes on the blockchain, wrote DappRadar in a recent report.

“The development of DeFi is progressing rapidly,” wrote blockchain analyst Coin Metrics on Tuesday. “Although institutions are probably not entering DeFi at this stage, there may be a growing interest from traditional financial investors attracted to the technology.”

The Ethereum ecosystem also has growing similarities to traditional fixed income markets, especially now that blockchain is turning into a “stake” system, where new rules will reward investors with juicy yields for putting the capital needed to ensure security from the Web. There is even a growing demand for bitcoin that is tokenized to make it compatible with the Ethereum network, where tokens can be deposited under DeFi protocols in exchange for attractive interest rates.

And just as bitcoin has benefited from a wave of big institutional investors allocating money for the asset, a series of headlines in the ether could attract new interest from professional managers.

Changpeng “CZ” Zhao, CEO of Binance, the world’s largest cryptocurrency exchange, wrote this week in a quarterly report that bitcoin serves as a gateway for investors entering the digital asset ecosystem: “People enter via bitcoin and they will almost certainly end up exploring other things in the cryptographic space, ”he wrote.

The Chicago CME futures exchange, which helped make cryptocurrencies more accessible to traditional investors when it launched bitcoin futures trading in late 2017, announced in December that it plans to start ether futures next month.

“This will give a broader base of institutional investors access to exposure to ETH,” wrote Arcane Research, a Norwegian cryptocurrency analyst, in a weekly note to customers.

There are risks, of course. Ether prices are even more volatile than notoriously volatile bitcoin prices. And last year, as DeFi activity grew, the Ethereum network experienced congestion and high transaction fees. Blockchain contenders emerged to challenge Ethereum, including Polkadot, Cardano and Binance Smart Chain, according to DappRadar.

Still, Simon Peters, market analyst at the eToro trading platform, said on Tuesday in e-mail comments that he is impressed by the network’s ability to host decentralized streaming applications, web browsers, video games, computer services. shared and digital art stores. In addition to DeFi.

“This abundance of uses contributed to the increase in the price of Ethereum,” wrote Peters. “As more Dapps are built on the Ethereum blockchain, their usefulness increases.”

He said it is “very feasible” for the ether to reach $ 2,500 this year, as it “benefits from the bullish cryptoasset race we are currently seeing”.

In that sense, it’s like bitcoin: a key use case for ether is speculation.

Investors’ continued appetite for bitcoin was not enough to keep the largest cryptocurrency at market value from falling by more than $ 2,600 on Wednesday.

Bitcoin fell from $ 36,000 to $ 34,000 on Wednesday morning (coordinated universal time or UTC) and was last seen changing hands near $ 34,300, representing a 5% drop on the day, according to data from CoinDesk 20.

Although the cryptocurrency is down, it is still within a narrow one-week price range, as seen in the hourly price chart.

A move below the lower end of the triangle would expose support at $ 30,000. The odds, however, seem stacked against a notable price drop, as bitcoin investors have not been intimidated by the bull market pause and continue to increase their holdings. The number of addresses with at least 1,000 BTC has increased from 2,407 to a new record of 2,438 in the past seven days, according to data provider Glassnode.

Meanwhile, the number of bitcoins trapped in accumulation addresses increased by 30,000 to 2,739,166 BTC last week. Accumulation addresses are those that have at least two “non-dust” input transfers and have never spent funds. Dust refers to insignificantly small amounts of the digital asset.

Finally, Grayscale Bitcoin Trust (GBTC), the largest publicly traded crypto investment fund, purchased a total of 16,244 BTC ($ 607 million) on Monday, sucking significantly more supply from the market than the mining companies added.

It remains to be seen whether persistent buying from major investors translates into a rapid recovery.

Read More: Bitcoin falls 5% despite continued buildup of investors

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