Bitcoin has dominated the news lately in the crypto world. A prospective hard fork – that was then cancelled – sent prices skyrocketing (up to an all-time high of $7800 and back down near $6000). A recent announcement of a futures market through CME might also mean that even more money will be waged on the future of cryptocurrencies.
A lot of that money will be around Bitcoin, the king and leader in the space. I don’t think this will change soon – though Bitcoin has some serious scaling issues to reckon with. Importantly though, Bitcoin is still the main transfer coin to get into “alt” coins – smaller cryptocurrencies (or crypto assets) that might have a promising future return for investors. Popular altcoins include Ripple, Dash, and Litecoin.
The two others that feature in the crypto top 6 market caps are Bitcoin Cash (a hard fork from Bitcoin from August – keep your eye on this one) and Ethereum, the #2 crypto that features technology more like a platform than a singular currency like Bitcoin.
Ethereum has been the #2 for many months, and had a price that rocketed from $10 at the start of this year to $40 in April to almost $400 (its all-time high) in August. It currently sits around $300 and a market cap of $28 billion.
For our view in the next six months, Ethereum has the most promising and stable tech of the big players, making it the ideal large-scale, or first, investment in the crypto space. And, yes, we’re saying this despite a recent issue with a provider called Parity, where the second largest Ethereum wallet had to lock coins down due to a security flaw. This is a danger for any emerging tech, though the Parity response and security upgrades continue to make any hacks more difficult. The price also rebounded from this news, showing investor confidence in ETH (Ethereum’s token for trade).
First, a briefer for the uninitiated. Ethereum is a technology that utilizes the blockchain in two unique ways: (1) smart contracts – self-executing codes that can transact money automatically once certain requisites are hit (think of any kind of transactional contract executing without a middleman); and (2) decentralized applications (DAPPs) – technology on top of this that companies can tailor toward their own products that work off of Ethereum’s language (Solidity) and protocol. These are called ERC20 tokens – and already there are half a dozen with market caps of over half of a billion dollars.
The second of these is also what has given birth to ICOs (initial coin offerings) which you may have heard about. They’ve brought in billions – over $800 million just in Q2 this year. They’ve fueled a ton of speculative investment in crypto, which has been good as early investments put money into projects they see as disruptive and innovative. On the negative side, some of these ICOs happen with small teams that have not done much more than put up a website and publish a whitepaper. More pertinently, often these investments come from investors in the form of ETH and then these small coin teams have to sell ETH off in order to grow their operations. This can be hundreds of millions of dollars worth of ETH taken off the market, or sold back into it, building sell walls higher than new and earnest investors can enter into ETH.
I think the ICO craze will fall off as investors get smarter about the small % of coins that will actually find success. That knowledge will see investors keep ETH closer to their chest and store for long-term investment. It will also allow its price to hit a point of its true value – which many agree is enormous. Take, for instance, the EEA, a group of large-scale businesses hoping to find ways to utilize these amazing technology.
Moreover, new updates are going to push Ethereum further into the adoption realm (which already features over 500,000 transactions per day).
The first update is scaling and security technologies – even more pertinent now with the Parity wallet issue. Technologists from all over the world are coming together to collaborate with the Ethereum dev team to find ways to keep its blockchain secure, while also scaling to handle the enormous influx of users to it. One example of this is off-chain computations (keeping the chain from getting clogged). Ethereum likely has the largest and most aligned developer team, since Bitcoin’s technological developers are split in ideology and the future.
The second update is several-fold, each with its own unique name. Metropolis, Casper, and Byzantium are the names of 2017 Ethereum updates. Byzantium already happened which boosted privacy imperatives on the chain.
Metropolis is in full bloom and it’s working to keep the chain “faster, light, and more secure” – all necessary upgrades for when Ethereum starts to get into the millions of transactions per day and used across enterprise and consumer intersections.
But the biggest upgrade is Casper – and this is the biggest reason why we’re recommending an Ethereum investment now, while the ETH price is still hovering around $300. Casper is a solution that founder Vitalik Buterin has for Ethereum’s scaling issues – most notably with mining and the confirmation of transactions. As the number of transactions grows, so too does the power needs to keep mining rigs running and the computational power to do this and store the growing blockchain (the file that keeps the record of all transactions). This is called “mining” which you’ve probably heard of. For almost all coins, mining gets more difficult (more computational power for less reward) as the chain for that coin expands.
Casper moves Ethereum to a proof-of-stake solution instead of mining as Bitcoin does. PoS solutions involve owners “staking” their ownership of a coin like ETH and confirming transactions (to be rewarded) simply by owning – and thus backing up the value of the coin.
So two things are going to happen. Ethereum is going to continue to find applications. Trust us. It’s a revolutionary technology and some say it is as transformative as the protocol that underlies the internet itself.
The next thing is that Ethereum owners – likely by the point of Casper to be large funds – will hold their ETH in order to earn more from its growth and the growth of its network (miners today are rewarded in the same way, so this is a substitute). Scarcity economics will then kick in. And while ETH doesn’t have a hard cap the way Bitcoin does, the addition of new ETH tokens will be at a much, much slower pace than the adoption of a radical technology once it is proven. People – and companies, importantly – will want ETH to power their use of its technology and blockchain.
This could drive prices up to great magnitudes. And that’s why so many people don’t just buy ETH but are quite literally stockpiling it. You should do the same.
We see prices moving steadily up from the near $300 level to near $400 by year’s end. And if there is continued Bitcoin instability – in price and in news – look for more money to move into the more reliable platform, Ethereum.
Disclosure: I am/we are long ETHEREUM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.