Ether recorded its biggest one-day gain in two years on Monday as the second-largest cryptocurrency smashed past $4,000 for the first time.
Ethereum’s digital token rose 7% in the past 24 hours to trade at about $4,165 as of 5:20. a.m. ET, according to data from CoinMarketCap. This milestone was achieved after ether’s value increased 16% increase in just five days.
More investors are betting ether will be fueled by a rise in the use of decentralized-finance applications and nonfungible tokens.
“Decentralized finance’s potential for replacing certain intermediaries with automated digital contracts continues to get more recognition from the traditional banking sector,” Paolo Ardoino, the chief technology officer at Bitfinex, said. “The myriad possibilities of decentralized ledger technologies should be likened to a technological force of nature that will continue to disrupt finance and other businesses.”
When ether was trading at about $1,200, the crypto analyst Megan Kaspar predicted it would hit $3,400. Kaspar, a cofounder of the digital-asset-investment company Magnetic, has now boosted her price target to between $8,000 and $10,000 by the end of 2021.
“The shift to proof of stake for block validation reduces carbon emissions by 99.9%, making Ethereum a green technology,” Kaspar said. “So these two updates on the network alone could push Ethereum to a trillion-dollar market cap, which is where bitcoin is at today. That would make Ethereum around $8,000 to $10,000 a coin.”
Her prediction matches that of Fundstrat Global Advisors’ head of digital-assets research, David Grider. Grider said he expected ether to hit $10,500 by the end of the year based on market data.
And the former Ark Invest analyst James Wang said ether could reach $40,000. The boom in DeFi applications is the major catalyst for him too, as he believes the $3 trillion global banking and auditing industry could be more efficient with software.
“So that’s $3 trillion of existing revenues up for grabs,” he said. “If Ethereum captures just 1% of that economic revenue, ether would be around $40,000.”
Measures of network activity suggest that ether – the cryptocurrency on the Ethereum network – should be trading as much as 75% lower than its Monday price at around $1,000, JPMorgan analysts have said.
The bank published a note on Friday that said the recent boom in ether had taken the price above fair value, according to some measures. Ether has soared more than 450% over the past year to a record high above $4,100 on Monday.
JPMorgan’s analysts, led by Nikolaos Panigirtzoglou, said measures of computing power and activity on networks can help assess the fair value of cryptocurrencies.
“Essentially, a larger network of users and miners makes the underlying blockchain more secure, and implies greater acceptability of the cryptocurrency on that blockchain,” they said.
But the analysts said a simple assessment of mining activity and the number of unique active addresses on the Ethereum network suggested ether should be trading at around $1,000 – more than 75% below Monday’s price.
“Prices appear to have diverged somewhat from the measures of network activity since the start of the year,” the analysts wrote.
However, they noted that there were a number of factors that had driven up ether since the start of the year – particularly growing institutional interest and upcoming network changes.
The analysts said the European Investment Bank’s decision to use the Ethereum blockchain network to issue €100 million ($122 million) of bonds “is surely very significant, as it represents the endorsement of the ethereum blockchain by a major official institution.”
Ether – the world’s second-biggest cryptocurrency – soared to record highs above $3,600 in the week to Friday and had outstripped bitcoin with year-to-date returns of around 370%.
Analysts said a key catalyst has been growing interest from big players such as the European Investment Bank in the Ethereum blockchain network, on which ether runs.
Investors have been drawn in by the possibility of building decentralized financial contracts on the system and other applications such as non-fungible tokens, or NFTs.
But upcoming changes to Ethereum that aim to make the network bigger and more sustainable are also exciting investors, as they could send the ether price soaring even further.
Insider spoke to Ben Edgington, who is working on the upgrades for development company ConsenSys. He laid out the roadmap for the changes.
The ‘London’ upgrade will start to destroy ether coins
After tweaking how transaction payments work in April, Ethereum developers are preparing for a major overhaul to the fees system. The changes are due in mid-July, according to Edgington.
Under the current system, users send what’s known as a gas fee to miners as payment for transactions to be verified, in a kind of auction. Miners complete transactions, and create cryptocurrencies, by using computing power to solve puzzles on the network.
But when the network is busy – as it increasingly is – the auction system means users have to bid larger amounts and estimate the appropriate fee, leading to volatility and sharp price rises.
To address the problem, Ethereum’s developers have agreed to a major change, known as EIP-1559 in crypto jargon and set to take place during an event called the “London hard fork.”
Under the new system, gas fees will be replaced by a mandatory and automatically determined base fee, which would fluctuate according to network congestion. Users will be given the option of paying miners tips if they need transactions completing quickly.
But the most exciting part for many investors is that the network will start to destroy or “burn” some of the gas fee.
Edgington says: “Potentially, more ether will be burned that will be generated for miners.” He added that this could make the supply of ether decline over time, “which actually trumps bitcoin monetary policy, which is fixed.”
One analyst said earlier this year the burning of fees might lay the groundwork for “explosive growth” in the ether price.
Ethereum 2.0 aims to boost the network’s size and sustainability
Developers are most excited about the momentous changes collectively known as Ethereum 2.0, which aim to make the network bigger and more sustainable.
First up on the road to Ethereum 2.0 is what developers are calling The Merge: a complete change in the underlying mechanics of the network, which Edgington says will hopefully be completed by the end of 2021, or in early 2022.
Currently, computers compete against each other to solve complex puzzles to verify the network and mine ether in what’s called a “proof of work” system.
This makes the network secure, because it would take huge and costly amounts of computing power and energy to hack into – but is very bad for the environment.
Ethereum will instead be moving to a “proof of stake” system. This means people can validate transactions and mine according to the number of coins they hold and are willing to offer as a sort of down payment, Edgington said.
Each user that wants to verify transactions – and thereby earn themselves rewards – has to put up a sizable stake, for example 32 ether worth over $120,000.
The idea is that anyone wanting to attack the network would have to earn enough ether to pay more than the collective value of all the stakes to start altering the blockchain in a damaging way.
Edgington says there is already around $10 billion staked the proof-of-stake network, known as the beacon chain, which developers launched in December.
Ethereum developers are working hard to shift across the network onto the new system – The Merge – but it’s not without risks.
One developer has described the process as “replacing the engine of an airplane while it is still flying.” But they added: “The code in use will have been exhaustively checked, battle-tested, and checked again.”
‘Sharding’ aims to expand the network
Yet Edgington stresses that “moving to proof of stake is not a scalability solution.”
To try to expand Ethereum so that more applications such as NFTs, or decentralized finance contracts, can be built on it, developers will create new networks in a process known as sharding.
“This is like running 64 blockchains in parallel with the beacon chain to increase the capacity,” Edgington says.
Simply put, creating more blockchain systems and tying them together by linking them to the main beacon chain should expand the overall network and make it more efficient, as opposed to the current system where everything is done on one big network.
“I expect within a year of delivering the proof of stake we’ll have delivered the sharding solution,” Edgington says. “But nobody’s making a strict project plan, or deadline about this. It’s ready when it’s ready.”
Asset manager VanEck is seeking US regulatory approval to launch an Ethereum exchange-traded fund, with the move taking place as the company waits for word on whether it will be able to introduce trading of the first bitcoin ETF in the US.
The firm said the trust, in aiming to reach its investment objective, will hold ether, the currency native to the Ethereum blockchain network, and value its shares daily based on the reported MVIS CryptoCompare Ethereum Benchmark Rate. Ether is the world’s second-largest cryptocurrency by market capitalization, behind bitcoin.
VanEck and the Cboe are waiting for the SEC to render a decision on whether it can list a bitcoin ETF, which the asset manager applied for in March. The regulator last week delayed a decision until at least July 17, leaving investors waiting on the US to greenlight the country’s first bitcoin ETF.
Wall Street institutions are increasingly embracing or signaling openness to including cryptocurrency into their operations. This week, S&P Dow Jones index announced the launch of three indices tracking the performance of the bitcoin and ethereum – the S&P Bitcoin Index, S&P Ethereum Index, and the S&P Cryptocurrency MegaCap Index.
The 27-year-old co-creator of Ethereum, Vitalik Buterin, is now the world’s youngest crypto billionaire after a 350% year-to-date surge in the price of his cryptocurrency.
Buterin’s Ether address, which he disclosed on Twitter in 2018, currently holds 333,521 ETH, worth some $1,125,299,854 as of 8:19 a.m. ET on Wednesday when Ether’s price was $3374.90.
Ethereum’s market cap is nearing $400 billion after a historic run for the second most popular cryptocurrency, which saw it reach heights of over $3,500 per coin before paring gains.
Changpeng Zhao, the CEO of the largest cryptocurrency exchange in the world, Binance, told Forbes there were several factors driving Ether’s meteoric run.
First, the rise of DeFi or, decentralized finance, is pushing more users into assets not held or distributed by central banks generally.
Second, user demand for ether to buy digital assets like non-fungible tokens (NFTs) could be driving prices higher.
“All of these use cases are moving right now, and people need the other coins to do this type of new transaction,” Zhao said. “Ethereum is one of those clear examples. That’s probably why Ether is going up.”
Ark Invest analysts also laid out three reasons why ether is set to continue its bull run in a note to clients on Monday.
The analysts said a rise in institutional investment, strong “on-chain signals” of increasing ETH use, and “imminent protocol upgrades” are set to buoy the coin moving forward.
EX-Ark Invest analyst James Wang even laid out a case for ether to hit $40,000 per coin in a recent interview.
If the cryptocurrency does rise to those previously unimaginable heights, ether’s co-founder Vitalik Buterin would be worth an incredible $13,340,840,000.
Buterin was born in Kolomna, Russia, in 1994 and later moved to Canada with his family, growing up in Toronto. He then briefly attended the University of Waterloo before dropping out after being awarded $100,000 from the Thiel Fellowship.
The Russian-Canadian Buterin then put all his efforts into Ethereum before revealing the cryptocurrency in a whitepaper in 2013.
The Ethereum initial coin offering (ICO) was the second public coin offering ever when it took place in 2014.
If you had bought 100 ETH at the time, it would have cost around $30. That 100 ETH would be worth $337,490 today.
Lately, Buterin has taken to sharing in the success of his cryptocurrency. The ETH founder recently donated roughly $600,000 in ether and maker tokens to a COVID-19 relief fund for India.
Ether’s current rally is less hype-driven and based more on fundamentals than in previous cycles as investors begin to understand Ethereum’s role in decentralized finance, according to Coindesk’s managing director of research Noelle Acheson.
That takes its year-to-date gains to more than 300%, far exceeding bitcoin’s 95% rise in 2021.
While Acheson said part of the price movement upward is likely driven by investors eyeing the round number of $3,000 and jumping in, it’s nothing like the momentum trading Ether saw from retail investors in 2017 during its last bull cycle.
“This time around there seem to be more professional investors involved…and the retail market is better informed about crypto more broadly,” Acheson told Insider.
When Ether reached $1,000 in 2017, just two years after the coin began trading publicly, it was very “inflated” given the fact that Ethereum network didn’t have that many applications built on top of it, she said.
“Now, Ethereum is powering decentralized finance, it’s powering stablecoins, it’s powering part of the NFT universe,” Acheson added, saying that the potential of the Ethereum network is better understood than four years ago.
Decentralized finance refers to a class of new applications that aim to replace traditional financial products – like lending and borrowing, trading, saving, derivatives, and options – through the use of decentralized tech, rather than relying on a company or bank. Ethereum was made for these “DeFi” applications to be built on top of the Ethereum blockchain.
Ether’s price is also going higher as investors prepare for the Ethereum network to undergo a massive upgrade to “Ethereum 2.0” that will improve the network and make it more scalable, Acheson said.
Though she emphasized that this upgrade and further institutional adoption doesn’t guarantee that the price of Ether will continue to go up.
The digital currency, which is often used for transactions in the digital market place for NFTs, now has a total market capitalization of $366 billion, according to data from CoinMarketCap. Bitcoin’s total value currently sits at $1.07 trillion.
The gains in ether have outpaced the gains in bitcoin year-to-date. Ether is up more than 300%, where as bitcoin is up about 95% based off of Monday afternoon prices.
These are the three reasons why ether continues to break higher, according to a Monday note from Ark Invest analyst Frank Downing.
1. “Increased institutional interest.”
Downing points out that four ether ETFs have launched on the Toronto Stock Exchange over the past two weeks, “making it easy for institutions to gain access as demand for crypto exposure broadens beyond bitcoin,” the note said.
“In addition, institutions and companies like European Investment Bank and Visa have validated the Ethereum blockchain by announcing issuance and settlement use cases, respectively,” Downing said.
2. “Strong on-chain signals.”
“Usage of the Ethereum network is increasing and, by some measures, outpacing that of Bitcoin, as shown by the number of active wallets and total transaction fees. In our view, Decentralized Finance (DeFi) and Non-fungible tokens (NFTs), both of which are burgeoning, explain Ethereum’s recent breakout,” Downing explained.
3. “Imminent protocol upgrades.”
The Ethereum Improvement Proposal 1559 is slated to go live in July, and will significantly change Ethereum’s transaction fee model, according to the note.
“Aiming to lower the volatility of ethereum’s fees, EIP-1559 introduces a mechanism to burn some transaction fees, detracting from circulating supply and introducing deflation to the ethereum ecosystem. The impact on ether’s price could be like that associated with a bitcoin halving event,” Downing said.
Two risks associated with ether’s recent rise
But there are still risks associated with ether and its rising price, Downing cautioned.
The first risk relates to the frequent and significant leverage associated with DeFi applications, which “given interoperability within the ethereum blockchain, might compound the leverage associated with other products,” Downing said.
“In the event of a downward spiral in ether’s price, the losses associated with deleveraging could be significant. Additionally, EIP-1559 could become a contentious upgrade, as miners will bear the brunt of fees burned. A miner revolt could impede the progress of the EIP-1559 upgrade,” Downing concluded.
Major banks from JPMorgan to UBS are increasingly keen on the Ethereum blockchain network, and it’s helping the system’s cryptocurrency, ether, soar to record highs.
Ether rose to an all-time high of $2,710 during Asian trading hours, before paring some gains to stand at around $2,672 on Wednesday.
The world’s second-most popular cryptocurrency had risen 15% over the week to Wednesday, according to data provider CoinGecko. It had gained around 260% in 2021 so far, compared to a 87% rise in bitcoin.
The interest from major banks and institutions around the world in the Ethereum network has boosted ether, which is the native cryptocurrency of the network and is used for transactions on it, analysts say.
On Tuesday, Bloomberg reported the European Investment Bank is planning to sell digital bonds using the network’s technology, offering $121 million of debt. The sale will be led by Goldman Sachs, Banco Santander, and Societe Generale, Bloomberg said.
It follows a rise in interest in the blockchain network, on which a range of applications can be built, including non-fungible tokens or NFTs and new technologies in the world of so-called decentralized finance.
JPMorgan, UBS and Mastercard were among the investors in Ethereum development company ConsenSys in a $65 million funding round earlier in April.
“Enterprise Ethereum is a key infrastructure on which we, and our partners, are building payment and non-payment applications to power the future of commerce,” Raj Dhamodharan, executive vice president of digital asset products at Mastercard, said.
ConsenSys has also worked with central banks in France, Australia and Thailand on central bank digital currency projects.
Analysts also say planned upgrades to the Ethereum network to make it more efficient, lower fees and start to destroy coins are helping the ether price.
Dallas Mavericks owner Mark Cuban told the Unchained podcast earlier in April that the move to a more efficient system will mean “the holdback of the impact on the environment will change immediately.”
He added: “That is going to give some people a reason to use Ethereum as a store of value over bitcoin, right there.”
Lex Sokolin, head economist at ConsenSys, said: “We think that Ethereum will become a global digital economy, settling the movement of all types of value across the world, including a meaningful portion of traditional financial services.”
Ethereum’s cryptocurrency ether is at a fork in the road and faces a big test in climbing above $2,700, according to analysts at crypto exchange Kraken.
Kraken analysts, led by Pete Humiston, said in a review of the market on Wednesday that ether had jumped 35% and outperformed bitcoin’s 30% gain in March.
Yet they said: “When looking at historical price action, ETH is at a bit of a fork in the road.” The world’s second-biggest cryptocurrency stood at around $1,990 on Thursday morning.
Kraken said on Wednesday that chart analysis suggested ether’s next big level of resistance is around $2,700. If it passes this level, it could break into a higher band where the next resistance level is $5,000, the report suggested.
Yet the analysts added that there is a danger ether falls below the key support level of around $1,460, in which case it could drop into a lower trading band where the lower support level is $990.
However, cryptocurrencies’ wild volatility means movements are hard to predict and makes technical analysis difficult.
Kraken’s report also said that the second quarter has historically been a good one for ether, which is yet to see a negative return in the period.
Ether has shot up more than 1,000% over the last year as interest in cryptocurrencies has boomed. It touched an all-time high of around $2,150 earlier in April and has traded around $2,000 over the last week.
Developers on the Ethereum network are set to make major changes to the system in July. The alterations will change how transactions work and start to destroy ether coins, which some analysts have said could lead to the price soaring.
Yet cryptocurrencies continue to divide the financial world. Economist Nouriel Roubini on Tuesday reiterated his charge that bitcoin and other cryptocurrencies are too volatile and difficult to use to be currencies, on Bloomberg TV.
He questioned that there was any value in bitcoin and called it a “self-fulfilling bubble.”
The price of ether, the world’s second-largest cryptocurrency by market capitalization, surged to an all-time high Friday in lockstep with the rally in the price of bitcoin.
Ether climbed to a high of $2,077 at around 11 a.m. ET. It first broke the $2,000 threshold around 9:50 am ET Friday. The digital asset for the ethereum network has gained 177% in 2021 alone and 1,370% in the past 12 months.
“It’s very positive to see [ether] rally along with [bitcoin] which has been the de facto flag bearer for crypto assets,” Jeffrey Wang, Head of America’s at Amber Group, told Insider. “The main takeaway for me is that the increased capital flows into crypto is now making its way into more than just [bitcoin].”
Wang also said investor diversification bodes well for the whole cryptocurrency space, which has seen a broader rally in recent weeks, boosted by the economic recovery from the pandemic-led recession and the third round of stimulus checks under the Biden administration.
“[Bitcoin] is a benchmark for investors’ confidence in store of value, while interest in assets like [ether] that focus on the programmable, smart contract side of the ecosystem show investors optimism for the utility and potential of decentralized finance,” John Wu, President at Ava Labs, the team behind Avalanche, told Insider. “Ethereum breaking past this threshold may result in a paradigm shift that will benefit the two to three smart contract networks gaining real traction with decentralized finance.”
Sergey Nazarov, co-founder of Chainlink lab,a decentralized oracle network, also attributed ether’s rally to the rise of decentralized finance, or DeFi, an umbrella term for various applications that use public blockchains and crypto assets to disrupt the traditional financial sectors.
“Ethereum users are now relying on DeFi applications in order to lend, borrow, earn yield, create derivatives, options, and even trade, all without the reliance of any centralized third party like a bank or a fintech like Robinhood,” Nazarov told Insider, adding that this new sector, worth over $45 billion, is the fastest growing in the cryptocurrency industry.
“I would expect to see more users utilize DeFi on Ethereum as they hunt for yield that ranges in the double digits,” Nazarov said. “I wouldn’t be surprised if the total value locked into DeFi apps on ethereum surges past hundreds of billions of dollars.”