Ethereum (CCC:ETH-USD) continues to confound bears. It has shot past the psychologically important $2,000 barrier and shows no signs of slowing down. The second most popular cryptocurrency, after Bitcoin (CCC:BTC-USD), is consistently racking up all-time highs.
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ETH has been strongly rising since Visa (NYSE:V) announced that its payments network would use USD Coin to settle transactions over Ethereum. Dallas Mavericks Mark Cuban also helped matters by saying that it’s closest “to a true currency.” Cuban said his portfolio allocation is, “60% bitcoin, 30% Ethereum and 10% the rest.”
There is also a major catalyst coming up for ETH. For years, Ethereum developers have been planning a shift to proof-of-stake from proof of work.
Under the new concept, Ethereum 2.0 blockchain users will get rewards for helping run the network based on the amount of ETH they are willing to stake to it. In contrast, proof-of-work involves using massive amounts of computer power to solve a series of cryptographic puzzles to create a new block.
The shift will lower the network’s energy use allowing the Ethereum network to process more transactions per second and reduce fees.
These initiatives are part of Ethereum 2.0, an ongoing project that does not have a definitive completion date. However, Justin Drake, one of the researchers working on Ethereum 2.0, has said, “I am confident we can ship the merge in 2021.”
So, things are looking up for Ethereum bulls.
Ethereum Escapes Bitcoin’s Shadow
For much of its life, Ethereum has played second fiddle to Bitcoin. Many mistakenly consider the two as like-for-like replacements of each other. However, Ethereum is very different from Bitcoin, which primarily serves as a virtual currency and store of value. What makes it different is that it can be used to “codify, decentralize, secure, and trade just about anything.”
You can build smart contracts, make regular peer-to-peer payments, and create and run applications. Bitcoin is used exclusively as a currency and store of value. Ethereum also processes transactions at a quicker pace.
Finally, the launch of futures on ether is another game-changer. It gives institutional investors access to a regulated market that allows them to get exposure to price movements while also mitigating any crypto-related risks.
Pros and Cons
Ethereum the largest ecosystem in blockchain and cryptocurrency. A large community of Ethereum developers is constantly looking to enhance the network. Hence, it becomes the platform of choice for new and sometimes risky decentralized applications.
The network also allows you to bypass third-party intermediaries. You need not worry about lawyers, banks, or financial advisors when transacting on the network. Finally, the Ethereum blockchain will become more enticing when it migrates to a new protocol.
Now, with the pros out of the way, let’s also highlight some risks. Ethereum’s growing popularity is leading to a sharp increase in transaction fees. In February 2021, fees reached a record $23 per transaction.
Plus, there is no limit to the number of potential Ether tokens. In contrast, there is a hard cap of 21 million Bitcoin.
There is an annual limit of releasing 18 million Ether per year, though, giving it a measure of protection against crypto inflation. Regardless, since there isn’t a lifetime limit, there is a danger that Ethereum will become akin to a currency compared to Bitcoin, which will retain value due to the hard limit.
On balance, a lot is going in favor of Ethereum. Expect these catalysts to continue pushing it upward. But you should be mindful of the risks when investing in this one.
What’s Next
Interest in blockchain technology is increasing at an exponential rate. Institutions are warming up to the idea of crypto, leading to an increase in demand. The introduction of listed Ether futures is only adding to the momentum, as major hedge funds and asset managers pour capital into the digital asset while also hedging against risk.
In 2020, ether volumes averaged $231 million per day. In the year thus far, the figure is averaging $2.7 billion per day. With Ether futures going live, expect volumes to keep increasing in the coming months.
Bottom line? Blockchain technology is quickly gaining more acceptance among companies and institutions looking to improve business processes or use it as a transaction method.
Consequently, ETH price is on a steady uptrend in the past few months. It remains above all the moving averages, which will provide it strong support as Ether continues to attain new highs.
If you haven’t already, now is the right time to invest in this digital asset.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience analyzing the stock market and was a former data journalist at S&P Global Market Intelligence.