Typically, CNN loves delivering the latest news and rumors that is the Washington political circus. But in recent weeks, one of President Donald Trump’s least-favorite news outlet reported on the mercurial rise of bitcoin (CCC:BTC-USD). It’s no wonder – BTC has gone from $20,000 to $30,000 and most recently $40,000 (although cryptos have recently corrected). But the real star of the show could end up being ethereum (CCC:ETH-USD).
Though it perpetually ranks in second place in terms of market capitalization, ethereum is hardly what you call an afterthought. Indeed, it has several advantages to the first-to-market bitcoin. First, while BTC was more of a proof of concept that virtual currencies could be a practical alternative to fiat currencies, ethereum expanded the possibilities of the underlying blockchain technology.
Here’s the thing – bitcoin revolutionized open-source payments, but it doesn’t perform this service very well, at least not to scale. That was the core reason why we saw a hard fork in the bitcoin blockchain. Long story short, the original architecture is too slow and unwieldy as it wasn’t prepared for global integration.
However, the team behind ethereum recognized the potential for the blockchain technology and took most of the innovations while improving on its limitations as it related to bitcoin. One of the advancements forwarded was the concept of smart contracts; essentially, a means to conduct deals without a third-party human (and costly) intermediary.
And that segues into the second point benefiting ethereum. If you want to do something with the blockchain aside from financial speculation, its architecture fosters modularity across myriad potential applications. It’s really the smart person’s crypto asset.
There are other attributes that distinguish ETH from other cryptocurrencies – far too many to go over in a short write-up. However, its proof-of-stake mining protocol is less energy intensive than proof-of-work protocols, making ethereum more environmentally friendly (relatively speaking, of course).
Still, does any of this bear relevance to the investment proposition of ETH?
Why Ethereum May Have Longer Upside Than You Think
A few days ago, Michael Hartnett, chief investment strategist at Bank of America Securities, stated that bitcoin looks like “the mother of all bubbles.” That’s not exactly the news you want to hear if you’re a supporter of cryptocurrencies in general. While the fundamentals for various crypto projects may vary, the sector often trades in sympathy with bitcoin.
Further, I don’t think the virtual currency market is mature enough where a major player can succumb to severe volatility while the other assets remain elevated. Even to this day, cryptos have a wild west element to them. And let’s be real – a substantial reason why we’re seeing elevated prices is because bitcoin garnered for itself (and by logical deduction, its peers) mainstream credibility.
If BTC goes down, it won’t be long before other crypto assets take a hit.
Having said that, the institutional money that’s moving into bitcoin gives speculators some confidence that this isn’t your garden-variety bubble. Let’s not forget that people (correctly) called 2017’s bitcoin run to nearly $20,000 as an unsustainable bubble. So from then until recently, cryptos have been in a long-term consolidation. Pattern-wise, you might expect bitcoin, ethereum and the rest to reach higher plateaus before crumbling again.
Analyzing the data on the ethereum price as it relates to its month-over-month performance (i.e. profit/loss), I’m seeing a maturing effect on ETH trading.
From the chart above, ethereum typically trades within a range roughly from up 70% to down 30% on a month-over-month basis. However, when it does get “bubbl-icious,” you see crazy gains – 150% lift from one month to the next or greater. Naturally, such enthusiasm isn’t sustainable.
So far this year, the trading action (defined as the yellow triangles in the above chart) has mostly stayed within the +70%/-30% range. Admittedly, as time goes on, ethereum is seeing robust trades. For instance, in the month-to-date, ETH is up nearly 74% from December’s average price.
However – and this is the critical point – we’re not seeing trading action get out of hand, well beyond the 70% monthly profit threshold. So long as the trades stay within reason – and again, this is a relative term – ethereum can continue to pleasantly surprise speculators.
Nevertheless, Be Careful
Roughly 90% of the time, whenever I receive emails from readers, it’s to tell me how special I am. I don’t mean that in a good way but rather, in a chromosomally deficient manner.
Genuinely, I do my best to provide useful analysis on various topics, including of course cryptocurrencies. Sometimes, I get it right and sometimes, I get it wrong. But with cryptos, the sentiment spectrum is extreme. Up until peak bitcoin in late 2017, I looked like a genius. Between the bubble bursting till earlier last year, I must have come across as a person with an IQ of an apricot.
In other words, please take anything that you hear from me or anyone else with a grain of salt.
Further, I don’t know what it is, but the cryptocurrency complex brings out the crazy in folks. For instance, the Wall Street Journal featured a story of a man who went all-in on bitcoin. Don’t get me wrong – the idea entices me. But I know myself. Beyond the chromosomal issue, I just don’t have the gametes to do something that outrageously bold.
Still, many get hooked on this big money sector. And most get caught up in the emotions, whether they’re gamblers or not. While cryptocurrencies are exciting, they can be vicious. Please engage accordingly.
On the date of publication, Josh Enomoto held a long position in ETH and BTC.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.