What’s taking Ether to the Moon?
Now that the dust has settled around Bitcoin’s price, the market makers are turning their heads back to Ether (ETH). The native coin of the Ethereum blockchain network is on a tear this week, reaching an all-time high of more than $2800 on Thursday.
What’s driving the price of this alternative coin (altcoin) which is up more than 270% from the beginning of the year? Analysts point to several major factors including the current cooling of interest in Bitcoin, the European Investment Bank’s launch of $121 million in digital bonds issued on the Ethereum blockchain, plus changes and upgrades to the network.
First, let’s take a look at the current impact of BTC’s recent drop in price. The market share of the world’s first digital currency, which commanded much of the more than $2 Trillion crypto market capitalization earlier this year, has fallen below 50%.
Historically, when BTC begins a decline, retail investors turn their attention to altcoins as part of the crypto market cycle.
“As we have seen with most bull cycles, bitcoin typically leads the charge,” Zachary Friedman, chief operating officer at GDA Capital said to CoinDesk. “Once bitcoin tops, money is redistributed into altcoins, which marks the nearing end of these cycles, historically.”
ETH (or Ethereum as it is also called) maintains the number two position with 15% of the current crypto market. While it trails BTC significantly, its fundamentals appear to be stronger.
“Both BTC and ETH experienced a comparable liquidity shock earlier this month which triggered a comparable de-levering event of their respective derivatives markets in subsequent days,” JP Morgan analysts said in a note to investors. “But ETH spot depth has recovered quicker and if anything, liquidity conditions on some exchanges is better than prior to that event.”
“Digital Silver,” as ETH is often called, received a major boost this week with the announcement by the European Investment Bank (EIB) that it issued the world’s first digital bonds on the Ethereum blockchain.
“On 27 April 2021, the EIB launched a digital bond issuance on a blockchain platform, deploying this distributed ledger technology for the registration and settlement of digital bonds, in collaboration with Goldman Sachs, Santander and Societe Generale,” EIB announced.
Banking industry leaders see the digital bonds issuance as a game-changer for the traditional financial industry.
“We expect the use of blockchain in combination with tokenization to become a game changer for the industry,” said Christoph Hock, Head of Multi-Asset Trading, Union Investment.
“We have been working on this innovative technology for several years and see a chance that it will be established as a market standard in the future.”
In the announcement, Vice President Mourinho Félix, of the European Investment Bank (EIB) was quick to address the environmental issues surrounding digital currencies. Critics of crypto often point to the tremendous amount of energy it takes to mine digital coins as a negative aspect of the coins.
“As a global leader in the green and sustainability bond markets, the EIB is clearly well-placed to lead the way now in the issuance of digital bonds on blockchain,” Félix, said. “These digital bonds will play a role in giving the Bank a quicker and more streamlined access to alternative sources of finance to boost finance for projects across the globe.”
Beyond the outside forces impacting the rise in ETH, the blockchain network is making its own changes and upgrades which will impact the future of the coin.
Most digital coins use a “proof-of-work” (PoW) model to validate each transaction on the blockchain. The Ethereum network is moving to a “proof-of-stake” (PoS) model which will streamline the transaction process and reduce energy requirements.
Moves away from mining to proof of stake is “far more ethical, far more green in how much energy it takes to create it,” investor Kevin O’Leary said in an interview with CNBC.
“Ethereum is also going through a major upgrade that will push it further from bitcoin, in theory allowing for faster transaction times and reducing the amount of power required to process transactions,” CNBC reported. “Both bitcoin’s and ether’s networks have attracted criticism from environmentalists over the impact of crypto mining on the climate.”
In addition, the Ethereum Foundation, which is the governing body for the network, is expected to implement Ethereum Improvement Protocol (EIP 1559) in July. The upgrade “will see the network’s native cryptocurrency Ether get burned every time it is used for transactions,” Blockchain News reported.
Even though the amount of Ethereum that can be created is infinite, the change in protocol is expected to create a scarcity model for the coin. Ether will “become a deflationary asset,” Nick Spanos, co-founder of Zap Protocol, told CoinDesk. “This feature will reduce the coin supply and have a corresponding effect on the price, creating an attraction point for more buyers.”
The future of Ether continues to evolve along with its network. As improvements are implemented and more people become confident with the immutable nature of the blockchain, digital coins such as Ether, the workhorse of the crypto world, will be poised to take off.
Joyce Pavia Hanson