how high will ethereum rise
Ethereum is currently the 4th largest cryptocurrency by market capitalization. It was previously known as ‘Ethereum Classic‘ before the creators of the platform decided to update the name to something a little more distinctive. The biggest news in recent months for ethereum is likely the DAO incident. While this was the topic of a previous blog post, many people are still wondering whether or not this was a fatal blow to the platform.
What is ethereum?
If you’re reading this post, you probably already know what Ethereum is. If not, here’s a short explanation. Ethereum is a decentralized platform that runs on the blockchain. Decentralization means that no one individual owns the platform; rather, it is maintained and controlled by the ‘netizens,‘ or the network’s users. In addition, smart contracts allow for the creation of digital agreements that can be automatically enforced (i.e. no third party is necessary to ensure compliance). In this way, Ethereum serves as a perfect hybrid between the traditional financial world and the emerging world of cryptocurrencies.
Why has ethereum suddenly shot up in value?
It’s a common misconception that Bitcoin’s value increased because of the popularity of the digital currency itself. In reality, the popularity of Bitcoin has most likely served as a contributing factor in the recent explosion in value. However, it is important to note that although Bitcoin is the largest cryptocurrency, it is not the only one that increased in value over the past few months. Ethereum, for example, is up more than 500% in value since January 2018.
This is primarily because the aggregated demand for all cryptocurrencies, including Bitcoin, has increased in line with the growing popularity of crypto-assets. In other words, people are buying coins and tokens in anticipation of profit. When asked about this trend, Fundstrat Global Advisor and CEO, Tom Lee, stated, “I actually think that what we’re seeing here is not so much a rise in demand for Bitcoin as it is a rise in demand for cryptocurrencies generally.”
Lee’s statement is accurate, but it does not answer the question of whether or not institutional investors are getting in on the action. Institutional capital is becoming an increasingly important factor in the cryptocurrency market, and it seems that many large investors are looking to get involved.
What is an institutional investor? Institutional investors are primarily defined as “large investors (i.e. those who’ve purchased $50,000 or more of crypto in the last year) who are looking to get exposure to the industry.” According to cryptocurrency research firm CoinIQ, as of March 2018, there were over 115,000 institutional investors trading in the cryptocurrency markets. This is compared to around 10,000 individual traders and investors.
Is there any truth to the rumors that institutions are pouring money into cryptocurrency?
There’s certainly anecdotal evidence to support this claim. For example, blockchain Capital, an institutional investment fund, recently invested in major cryptocurrency project Sparkz. As a result, Sparkz’s share price rose by 22% in less than 24 hours. Similarly, Binance, one of the world’s largest cryptocurrency exchanges, has also reportedly seen a significant uptick in interest from institutional investors following the recent announcement of its dedicated institutional platform. This platform is essentially aimed at larger investors and provides them with faster transaction speeds and more security than typical exchanges.
While it’s great that large institutions are taking note of and getting involved in the cryptocurrency space, it would be unwise to solely rely on anecdotal evidence to form a conclusion about whether or not institutional investment in cryptocurrencies is a good idea. For that reason, it is important to look at the evidence.
What are the benefits of cryptocurrency for institutions?
For starters, cryptocurrencies are fairly easy and accessible to purchase. Whereas, previously, investors had to rely on brokers for access to high-quality foreign stock, today they can access the cryptocurrency market directly through an online broker. Moreover, the vast majority of online brokers now offer some sort of cryptocurrency investment account, meaning that even smaller investors can now get involved in the crypto market. Finally, the use of crypto-assets in the institutional landscape is also becoming more commonplace.
For example, look at the coffee shop chain, Starbucks. Despite being a familiar sight on most street corners around the world, Starbucks has actually been a crypto-friendly company since 2011. That’s nine years of running a business that accepts Bitcoin and other cryptocurrencies as payment (the company even provides customers with a wallet to hold their digital assets). In March 2018, Starbucks revealed that it had invested a seven-figure sum in a cryptocurrency mining operation employing over 2,000 digital miners. Moreover, Starbucks announced that it would be implementing a new rewards program for its customers, linking the purchase of certain goods to the redemption of cryptocurrencies.
In other words, for institutions, the appeal of investing in cryptocurrencies is clear: accessibility, low barriers to entry, and the increased ability to profit from fluctuations in price.
Is the demand for cryptocurrencies from institutions going to continue?
It’s difficult to put a price on the appeal of higher capitalization, but if we look at the demand for cryptocurrencies from traditional financial institutions, the answer is fairly simple: yes. As noted by the aforementioned Fundstrat Global Advisor and CEO, Tom Lee, “I actually think that demand for cryptocurrencies from larger retail and institutional customers is going to continue.” In other words, even bigger players are interested in cryptocurrencies because they provide a decent opportunity for profit. Moreover, looking ahead, the combination of more experienced traditional investment management with the innovation of cryptocurrency could prove to be a lucrative venture for those who get in early.