The ascent of Bitcoin and Ethereum has been spectacular to say the least. Different reasons drove this impressive rally, and, in this article, InvestingHaven’s research team highlights the top 3 reasons behind Bitcoin and Ethereum’s stellar performance.
1. INSTITUTIONAL AND RETAIL INVESTORS ARE JOINING THE GAME
Since inception, the interest in cryptocurrencies evolved immensely and today, more and more players are seeing it as a new investment option We are now at a stage where the interest has evolved from the early adopters to including institutional and retail investors. This adoption represents another turning point for digital currencies and an impressive shift when you think of how just a couple of years ago Cryptocurrencies were mostly used for black market transactions.
The continuously increasing market cap of digital currencies (tore than $60B all currencies combined) has contributed to attracting the interest of institutional investors which is fuelling the cryptocurrencies’ already spectacular rally.
Recently Abigail Johnson, president and CEO of Fidelity Investments has expressed her fascination with the world of digital currency “I love this stuff – Bitcoin, Ethereum, blockchain technology – and what the future holds,”. The company has in fact been experimenting with a small-scale bitcoin and Ethereum mining operations. Soon they will be offering their clients the ability to view their Bitcoin and Ethereum holdings with Coinbase on Fidelity’s website. She recently urged a group of entrepreneurs, academics and developers to work together in order to solve Blockchain impediments which would drive the usage of cryptocurrency in decentralized applications in the finance and insurance sector.
Another solid vote of confidence in cryptocurrencies comes from Japan, with a new law recognizing Bitcoin as a legal payment option and a viable store of value in the country, Effective on April 1st, 2017. Japan is also waiving the consumption Tax on the purchase of digital money as of July 2017. All these steps have considerably boosted the Demand from investors in the Japanese markets.
On September 2013, Grayscale offered investors the possibility to gain exposure to Bitcoin through the Bitcoin Investment trust and in April 2017, The Ethereum Investment trust (ETC). Both have been a success and the charts below illustrate how investors are rushing to invest in cryptocurrencies, with the value of ETC almost quadrupling within a month.
The possibility for investors to gain exposure through an ETF is not ruled out yet. After rejecting the first submission for the approval of the Winklevoss Bitcoin ETF (COIN), The American Security and Exchange Commission is currently in the process of reviewing its previous decision. We won’t be surprised to see soon an Ethereum ETF being the first out of the gates since Ether is already supervised by a regulatory agency; the New York State Department of Financial Services (NYSDFS).
2. INTRINSIC VALUE IS RISING WITH MANY FINANCIAL INSTITUTIONS APPLYING ETHEREUM IN CRITICAL APPLICATIONS
In this section we focus on Ethereum’s intrinsic value. it resides in the transaction volume and application usage demand. Therefore, the more this digital currency and the underlying technology is being used, the higher the value of the cryptocurrency will be.
Thorough analysis of the future demand for Ethereum, which is a composition of application usage demand (detailed below) and investment demand (discussed in the previous section), resulted in InvestingHaven’s long term Ethereum price forecast of $1000.
Note that InvestingHaven has a track record of forecasting future prices, and their Bitcoin price target for 2017 was recently met.
Application usage demand for Ethereum is defined as the usage of the Ethereum protocal and the underlying blockchain based Ethereum Network. That is attracting serious attention from major players which are currently in the process of launching and developing applications using the Ethereum Protocol. The best example to illustrate this is the creation of the “Enterprise Ethereum Alliance”, 86 companies working together to create and develop standards to use Ethereum to track data and run smart contracts. The “EEA” includes companies from Fortune 500 such as Microsoft, JPMorgan Chase, Intel, Accenture, UBS, Thomson Reuters, and other major players.
Spanish banks have recently formed a new blockchain consortium to achieve in-depth understanding of the technology and potential future applications. According to El Pais, the consortium includes 33% of the Spanish banking sector.
Project Jasper in Canada, launched in June 2016 is another example of the collaborative approach Financial institutions are taking to have a better understanding of the untapped potential Ethereum represents. The project is a joint initiative between the Bank of Canada, Payments Canada, major Canadian banks and R3. So far, the primary results are positive and the technology could meet the principles for financial market infrastructures.
The National Bank of Canada, the country’s sixth largest commercial bank, started using the Ethereum protocol and its smart contract technology to develop blockchain-based financial applications and platforms.
The fact of the matter is that the potential is enormous because Ethereum is about technology applications in the finance sector, and that sector has not gone through digital disruption when it comes to their services and payment systems. The daily money flows in that sector are enormous.
3. SAFETY HAS BEEN A CONCERN AND INVESTORS ARE NOTICING THE PROGRESS IN TACKLING SECURITY ISSUES
Digital currencies, especially Bitcoin and Ethereum have made a lot of progress to become a safer and more secure environment. Advanced forms of encryption and bespoke algorithms are only some of the ways these digital currencies are trying to provide the safest experience to their client. This progress has made more investors inclined to “trust” these platforms, therefore, increasing the demand for cryptocurrencies.
That said, they remain experimental new currencies and there can always be challenges along the way.
In this article, we covered the 3 main reasons why we are seeing such a spectacular rally in the cryptocurrency world, and, in particular, the price of Bitcoin and Ethereum. We have also provided examples of how some specific initiatives are impacting this market. Most of these initiatives including the increased adoption by more traditional investors are fairly new and represent a fraction of the investors that could potentially join as more barriers are being removed.