Ether prices are now hovering around $3,400, a more than 330% gain this year. Bitcoin prices have risen a “mere” 90% by way of comparison. In the past week alone, ether is up a staggering 30% while bitcoin is flat. That has raised some concerns that ether has risen too far, too fast, just like bitcoin did in 2017 before plunging spectacularly in 2018.
So why has ethereum, which now has a combined market value of about $400 billion for all its coins in circulation, taken off lately?
“Why is there so much interest in ether right now? With the explosion of NFTs, people are viewing alternatives to bitcoin like ether as a real utility. It’s not just a store of value, the digital gold that bitcoin is,” said John Wu, president of Ava Labs, an ethereum-compatible blockchain firm.
Wu added that ether is also getting a boost thanks to two other more technical developments.
Ether also just went through a hard fork — essentially an upgrade to the ethereum blockchain network that will help increase transaction speeds.
Ether, like bitcoin, is going mainstream
But ether’s rise goes beyond technical reasons.
He said that up until recently, new cryptocurrency investors only cared about bitcoin. Then they started to show interest in other cryptocurrencies, particularly ethereum, as a way to diversify their holdings.
“Ethereum has now crossed the Rubicon into the mainstream, and despite the difficulty understanding it, investors of all sorts are finding reasons to add ETH to their portfolios,” Dorman wrote.
S&P Dow Jones Indices has validated cryptocurrencies as well. The index provider behind the Dow and S&P 500, said Tuesday that it was launching a bitcoin index, ethereum index and cryptocurrency megacap index.
“Traditional financial markets and digital assets are no longer mutually exclusive markets,” said Peter Roffman, global head of innovation and strategy at S&P Dow Jones Indices, in a press release.
Investors may also be flocking to ethereum as well as other cryptocurrencies because there are rising concerns about inflation looming on the horizon as the global economy and US job market heats up.
Hedge against central banks printing more money
Ether is part of the so-called decentralized finance, or DeFi revolution that offers financial products which don’t rely on central banks.
“With inflation rising, DeFi products on ethereum are the perfect way for people to combat the uncertainty created by central bank money printing and various supply shocks,” said Sergey Nazarov, co-founder of Chainlink, in an email to CNN Business.
All that said, investors probably need to be careful. Ether’s rise has been so sharp and sudden that one can’t help but expect an eventual pullback like Bitcoin had in 2018 after it first enjoyed a massive surge.
But Tally Greenberg, head of business development at Allnodes, a cryptocurency hosting provider, said she’s not worried that ether will suffer the same fate.
“I’m not sure that ether will dip that much,” she said. “Yes, its price may fluctuate. But ethereum may have even more potential than bitcoin.”