Ether, the second-largest cryptocurrency by market capitalization, finds itself in a challenging position as it strives to keep pace with its dominant counterpart, Bitcoin. Despite its significance in the crypto market, Ether’s performance has fallen short of Bitcoin‘s soaring trajectory in recent months.
While Ether has seen modest growth, with a 53% increase in the first quarter of this year, it lags behind Bitcoin’s impressive 65% surge. Trading around $3,612 on Monday, Ether remains approximately 26% below its all-time high of $4,867.60, recorded in November 2021.
Despite a recent technical upgrade of the Ethereum blockchain aimed at enhancing its functionality for application development, Ether failed to garner significant attention outside the crypto community. In contrast, anticipation surrounding Bitcoin’s upcoming “halving” – a technical adjustment designed to reduce the coin’s supply – has fueled excitement among investors.
Following the Ethereum blockchain’s Denunc upgrade on March 13, aimed at reducing transaction fees, Ether experienced a 12% decline, highlighting the market’s tendency to sell the news.
Joseph Edwards, head of research at London-based crypto firm Enigma Securities, attributes Ether’s challenges to its lack of widespread recognition among non-endemic investors. He notes an increase in economic activity on the Ethereum network but suggests that reaching all-time highs may be a prolonged process.
The approval of spot Ether Exchange-Traded Funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) could significantly impact Ether’s trajectory. Similar approvals for Bitcoin ETFs spurred institutional demand and drove Bitcoin to record highs. VanEck’s Ether ETF filing is pending a decision on May 23, with expectations that its approval could propel Ether to $8,000 by the end of 2024 and $14,000 by the end of 2025, according to Standard Chartered Bank.
However, regulatory uncertainty looms over Ether’s classification, with lawyers and industry sources highlighting its ambiguous legal status. While the SEC has classified Bitcoin as a commodity, Ether’s designation remains unresolved. The nature of Ether’s blockchain, which allows users to earn yields through staking, adds complexity to its regulatory assessment, potentially impacting ETF approvals.
Anders Helset, head of research at digital assets analytics firm K33, believes securing approval for staked Ether ETFs will be challenging given regulatory considerations. Institutional demand for Ether remains subdued compared to Bitcoin, with digital asset funds experiencing outflows in contrast to significant inflows into Bitcoin-related products.
Despite these challenges, market participants emphasize Ethereum’s technological potential, particularly its role in facilitating the ‘Web3‘ vision and powering applications in decentralized finance and blockchain gaming. BlackRock recently unveiled a tokenized fund on the Ethereum blockchain, highlighting broader interest in Ethereum’s utility beyond cryptocurrency.
As Ethereum continues to evolve as a foundational technology, its significance in enabling the tokenization of traditional assets underscores its potential for broader adoption and innovation in the digital economy.
