First Bidder: What’s Next for Ethereum After Cryptocurrency Hits All-Time High

Bitcoin (BTC), the largest cryptocurrency, was down for a second straight day, pushing toward the lower end of the $ 34,000 to $ 40,000 range where prices have traded for the past couple weeks.

Ether (ETH), the second-largest cryptocurrency, retreated after surging Tuesday to a new all-time high of $ 1,439. (Our Market Moves column, below, looks at the significance of this milestone. See also the latest issue of the CoinDesk Valid Points newsletter from our colleagues Christine Kim and Will Foxley, exploring the “intrinsic value of ether.”)

The price disadvantage is “a bit disappointing, but not entirely unexpected given the focus elsewhere, most notably the transfer of power in the US,” Denis Vinokourov, head of research for the leading cryptocurrency broker Bequant.

In traditional markets, European shares rose and US stock futures highlighted a higher opening in front of the swearing in organized by President-elect Joe Biden on Wednesday in Washington at 12 pm local time (17:00 UTC). Gold strengthened 0.5% to $ 1,848.78 an ounce.

Moving the Market

Just a month after bitcoin (BTC) held its all-time high of the bull three years ago, prices for the lesser-known but more versatile ether (ETH) set a new record on Tuesday: $ 1,439.33, based on pricing CoinDesk.

And just as the rapid rise of bitcoin has triggered a new wave of high-price predictions, analysts and investors in digital asset markets immediately speculated on what will come next for ether, the Ethereum blockchain native cryptocurrency.

“Ethereum will soon pass to the next level,” trader and analyst Alex Kruger tweets on Tuesday. Points to watch range from $ 1,500 to $ 2,750, he added.

The run is already looking pretty impressive. Prices climbed nearly six times last year and have increased another 90% in the first weeks of 2021.

Ether price chart showing recovery from “Crypto Winter” 2018.
Source: TradingView / CoinDesk

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

The price surge over the past few days has pushed the market value of all existing ether in the world to about $ 160 billion. At that level, it’s bigger than U.S. financial behemoths Wells Fargo ($ 135 billion) and Citigroup ($ 132 billion) as well as 86-year-old Wall Street investment bank Morgan Stanley ($ 137 billion).

Bitcoin’s market value is about $ 644 billion, for what it’s worth.

Best global assets by market capitalization.

The logical justification for comparing the value with banks is that the Ethereum blockchain is the prime location for the development of “decentralized finance.” Known as DeFi, it is a sub-sector of the cryptocurrency industry where entrepreneurs use open source software to build semi-automated versions of lending and trading platforms on top of blockchain networks. The theory is that they could replace or at least disrupt traditional financial firms.

The comparison is not perfect, as Ethereum works more like a network for companies and developers to build on rather than the companies themselves. But the exercise highlights the scale that the ecosystem can no longer dismiss.

This is key for ether value, as the cryptocurrency is often used as collateral within DeFi protocols as well as used to pay fees on transactions over the Ethereum blockchain.

Collateral stocked into DeFi protocols has soared to nearly $ 25 billion, up from about $ 700 million at the beginning of 2020, and even Brian Brooks, who stepped down last week as the U.S. interim regulator of ‘ r the currency, tweets on Tuesday that DeFi might be “scary to some today but necessary tomorrow as some banks begin to tell you what you can and can’t do with your own money.”

According to industry tracker DappRadar, about 45% of 238 new decentralized applications in 2020 are planned to run on the Ethereum blockchain. The top 10 applications, called Dapps, accounted for 87% of transaction volumes on the blockchain, DappRadar wrote in a recent report.

“DeFi’s development has been progressing rapidly,” blockchain analyst Coin Metrics wrote on Tuesday. “Although institutions are unlikely to enter DeFi at this time, there may be increasing interest from traditional finance investors attracted by the technology.”

The Ethereum ecosystem is also very similar to traditional fixed income markets, especially now that the blockchain is transitioning to a “staking” system, where new rules will reward investors with juicy products for providing the capital needed to ensure security network. There is even increasing demand for docked bitcoin to make it compatible with the Ethereum network, where the tokens can be deposited into DeFi protocols in exchange for attractive interest rates.

And just as bitcoin has benefited from a wave of large institutional investors allocating funds to the asset, a host of headlines on ether could draw renewed 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 is acting as a gateway for investors entering the digital asset ecosystem: “People are coming in through bitcoin and will almost certainly explore other things in the crypto space, ”he wrote.

The Chicago-based futures exchange CME, 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 ETH an institutional investor base access to ETH exposure,” Norwegian cryptocurrency analytics firm Arcane Research wrote Tuesday in a weekly note to clients.

There are risks, of course. Ether prices are even more volatile than those for the notoriously volatile bitcoin. And over the past year, as DeFi’s activity grew, Ethereum’s network was experiencing congestion and higher transaction fees. Blockchain rivals have begun to challenge Ethereum, including Polkadot, Cardano and Binance Smart Chain, according to DappRadar.

However, Simon Peters, a market analyst for the eToro trading platform, said Tuesday in email comments that he was impressed with the network’s ability to host decentralized streaming applications, web browsers, video games, shared power computer services and digital art stores. As well as DeFi.

“These many uses have contributed to Ethereum’s price rise,” Peters wrote. “As more Dapps are built on the Ethereum blockchain, its usefulness increases.”

He said it was “very practical” that ether could hit $ 2,500 this year, as it “benefits from the extended cryptoasset bull run we’re seeing right now.”

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

Watch Bitcoin

Bitcoin hourly price chart, showing a “contracting triangle” trading pattern in a narrowing range.
Source: TradingView / CoinDesk

Investors’ continued desire for bitcoin was not enough to prevent the highest cryptocurrency at market value from slipping over $ 2,600 on Wednesday.

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

While the cryptocurrency is down, it is still within a narrow week price range, as shown on the hourly price chart.

Moving under the lower end of the triangle would reveal support at $ 30,000. Odds seem, though, to be stacked against a marked fall in prices, as bitcoin investors are undermined by a bull market break and continue to boost its holdings. The number of addresses holding at least 1,000 BTC has risen from 2,407 to an all-time high of 2,438 in the past seven days, according to data provider Glassnode.

Meanwhile, the number of bitcoins locked in accumulation addresses has increased by 30,000 to 2,739,166 BTC in the past week. Accumulation addresses are those that have at least two incoming “dust-free” transfers that have never spent money. Dust refers to very small amounts of the digital asset.

Finally, Grayscale Bitcoin Trust (GBTC), the largest publicly traded crypto investment trust, buy a total of 16,244 BTC ($ 607 million) on Monday, sucking up much more supply from the market than miners had added.

It remains to be seen if continued purchases from large investors turn into a rapid recovery.

Read more: Bitcoin Falls 5% Despite Continuous Investor Accumulation

Token watch

Binance Coin (BNB): CEO of Changpeng Exchange “CZ” Zhao writes in a quarterly report that dedicated burning of 100M tickets could take five to eight years at a recently accelerated rate, instead of 27 years at an average rate over the 3.5 years last (Binance)

EOS (EOS): Dan Larimer’s departure brings to light EOS disappointment (CoinDesk)

What’s hot

Thai stock exchange launches trading for symbolic digital assets in H2, except cryptocurrencies (CoinDesk)

US Treasury Secretary nominee Janet Yellen says at a confirmation hearing that cryptocurrencies are a “concern” in terrorist finance (CoinDesk)

“Difficulty in forecasting earnings, lack of diversification and high volatility make it difficult to consider bitcoin as a standalone asset in a diversified portfolio for long-term investors,” Barclays Private Bank’s chief market strategist writes in the post. (International investment)

A Deutsche Bank survey shows that investors see bitcoin at the top of the list of perceived asset bubbles, alongside electric car maker Tesla, CNBC (CoinDesk) reports

Analysis of bitcoin earnings during various trading hours seems to support a narrative that a recent rally was driven by US institutional investors trading in North American daytime hours, a NYDIG (NYDIG) analysis shows

The timing of bitcoin returns appears to have shifted toward North American (green line) trading hours from Asia (black line) over the past year.
Source: NO


Update on traditional economy and finance

After 144 years, London Metal Exchange is proposing to close a trading cycle (WSJ)

Chinese e-commerce founder Alibaba Group Holding founder Jack Ma resumes three months after disappearing (Nikkei Asia Review)

European commercial real estate owners stay afloat during a pandemic thanks to the purchase of solid central bank bonds packaged out of real estate loans (WSJ)

“The stock market is driven by a combination of investors misinterpreting the meaning of stock price and rush to buy rubbish,” wrote columnist James Mackintosh (WSJ)

US Treasury Secretary nominee Janet Yellen is using a confirmation hearing to argue for another sweeping economic aid package, pushing back against Republican skepticism about a need for more deficit spending (WSJ)

Yellen may favor expansionary fiscal policy now, but the Federal Reserve’s balance sheet did not expand much during her time as chair, notes Mati Greenspan of Quantum Economics:

Chart showing Federal Reserve balance sheet during Janet Yellen’s term as chair.
Source: Federal Reserve Bank of St. Louis / Quantum Economics

Twitter of the Day

Sign up to receive First Mover in your inbox, every day of the week.