ETHEREUM UPSWING
Why is it Ethereum’s turn to climb higher?
The second-largest crypto has been on a tear since the beginning of the new year — what factors are at play?
Unlike its contemporary Bitcoin — Ethereum has seen a gradual incline in value over the course of 2020. As BTC went into a vertical ascent towards the end of the last year, Ethereuem was quietly gaining in value. The first week of 2021 seems to have woken up the king of Alt. coins. Rising almost 40% since the beginning of the new year (Figure 1), ETH has touched a three-year high of almost $1170 — currently trading around $1100.
A lot of discussions usually center around Bitcoin and for good reason — it is the premier cryptocurrency with a lot of investment interest and controls almost 70% of the crypto market cap. But this doesn’t make Ethereum any less important. After all, it is the primary smart contracts platform upon which most decentralized finance (DeFi) protocols & decentralized apps (dApps) run.
I recently wrote about how 2020 belonged to Bitcoin, and I believe Ethereum might still steal the limelight in 2021. The broad range of use cases that ETH offers in the crypto space puts it in a unique place and that’s why it’s one of my favorite crypto platforms. Let’s look at some of the reasons why this year Ethereum might lead the pack.
Bitcoin Exhaustion
The exponential rise of Bitcoin in the last few weeks has seen in chart new highs — with the most recent ATH being just shy of $35k at the time of writing. This has been great news for institutional buyers & ‘whales’ who have shown up to the party in a big way, smaller investors with not so deep pockets might be feeling left out. It might play out even more if Bitcoin continues to rise.
This is where the next safest best in crypto investment comes in the form of Ethereum — the leader of the Alt. coins. Although ETH is at 3-year highs right now, it is still some way off from the $1417 ATH, it charted back in Jan. 2018. And compared to Bitcoin’s price it is a bargain right now. Not to say, that there are other Alt. coin platforms, which have the potential to go a long way, however, none who proclaimed themselves as “Ethereum killers” have been able to do come close to the kind of adoption ETH has seen in the crypto space.
Ethereum Futures
If you have been following the crypto markets since the last peak, you would remember that BTC reached its previous ATH, the day Chicago Mercantile Exchange (CME) Group launched Bitcoin Futures. CME, a global markets company, and the world’s largest financial derivatives exchange has now announced that it will be launching Ether futures for institutional investors in February 2021.
Aggregated daily volumes of BTC futures on CME alone touched $2.7 billion on Jan. 4, 2021. Imagine if the ‘big money’ starts to flow to ETH as it did for Bitcoin via Futures, this increased institutional exposure could not only mean increased mainstream adoption of digital assets but propel Ethereum to new heights.
Launch of Ethereum 2.0
One of the biggest drags for Ethereum has been its functioning on the energy-intensive Proof of Work (PoW) algorithm — the one also used by Bitcoin. The dedicated developer's team for Ethereum has been hard at work to transition to a more scalable and efficient Proof of Stake (PoS) network. The so-called Ethereum 2.0 kicked off with the deployment of “The Beacon Chain” last month.
PoS blockchain requires block validation by stakeholders rather than block miners, who perform complex computations to earn rewards. The shift is expected to change Ethereum’s economic model, resource usage, and governance. More importantly, the most widely used crypto platform would become even more enticing with its increased scalability, security & decentralization.
Defi Boom
And not to forget the Defi revolution that we have seen in 2020. DeFi refers to the use of Blockchains, Cryptocurrencies, and smart contracts to provide financial accessibility & inclusiveness to those who have been kept out of the current system by geographic, economic & financial barriers. DeFi platforms fall into the category of decentralized applications (dApps) built on top of smart contract-enriched blockchains — primarily the Ethereum network.
The transition to a more scalable Ethereum network couldn’t have started at a better time as tons of Defi transactions need to be processed faster & cheaper. The chart (Figure 2) for total value locked in Defi assets looks pretty similar to ETH’s price gain. A steady gain throughout the year 2020 — suddenly taking off at the beginning of 2021. Just imagine the growth this sector has seen over the past 12 months — starting somewhere around $600 million in total value locked (TVL) in Defi assets, it currently holds just shy of $20 billion.
The pandemic has certainly accelerated the move towards a more virtual economy. And this might play out well for decentralized cryptos like Ethereum with useful applications.
