While bitcoin continues its meteoric rise, its counterpart, ether, the second-largest cryptocurrency by market capitalization, finds itself trailing behind. Despite commanding less than a fifth of the $2.7 trillion crypto market, ether’s performance remains respectable, albeit subdued in comparison to the exponential growth witnessed by bitcoin. Over the first three months of this year, ether has seen a modest increase of around 53%, lagging behind bitcoin’s impressive 65% surge.
Although bitcoin reached new peaks last month, ether is still striving to reclaim its November 2021 all-time high of $4,867.60, trading at around $3,612 as of Monday, marking a shortfall of at least 26%.
Even a recent technical upgrade of the Ethereum blockchain, aimed at enhancing its functionality for building applications, failed to generate significant enthusiasm beyond the crypto community. This stands in stark contrast to the anticipation surrounding bitcoin’s upcoming “halving,” a technical adjustment designed to slow the coin’s supply, which has garnered widespread attention.
In a typical case of “selling the fact,” ether experienced a 12% decline following the implementation of the Dencun upgrade on March 13, intended to reduce transaction fees within its ecosystem.
Joseph Edwards, head of research at London-based crypto firm Enigma Securities, remarked, “Ethereum is persistently dogged by its lack of name recognition among non-endemic investors.” Despite witnessing increased economic activity compared to 2020, its journey to all-time highs is anticipated to be a gradual process.
Much hinges on the potential approval of spot ether exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC). The approval and subsequent launch of several U.S. spot bitcoin ETFs played a pivotal role in spurring institutional demand and propelling bitcoin to record highs. Similar anticipation surrounds ether ETFs, with VanEck’s filing awaiting a decision on May 23.
While some, like Standard Chartered Bank, anticipate approval, expecting ether to reach $8,000 by the end of 2024 and $14,000 by the end of 2025, not everyone shares the same optimism. Legal experts and industry insiders highlight the ambiguous legal status of ether, with regulators likely to proceed cautiously.
Unlike bitcoin, ether operates on a ‘proof-of-stake’ blockchain, offering users the opportunity to earn yield by locking up tokens for a specified period. This unique feature raises questions about its classification, as staked ether could potentially be considered a security, subject to stricter regulatory oversight.
Amidst these uncertainties, institutional demand for ether remains subdued compared to bitcoin. Digital asset funds tracking ether witnessed outflows of $46.4 million in the month to March 23, contrasting sharply with the inflows exceeding $4 billion for products tracking bitcoin, according to CoinShares data.
Nevertheless, some market participants remain bullish on Ethereum’s technology, which underpins the burgeoning ‘Web3‘ vision and powers applications in decentralized finance and blockchain gaming. The recent launch of tokenized funds on the Ethereum blockchain by industry giants like BlackRock has sparked discussions about its broader utility in tokenizing real-world assets.
Despite regulatory challenges and fluctuations in investor sentiment, Ethereum’s ecosystem continues to evolve, attracting attention for its potential to reshape traditional finance and revolutionize various industries.
