Four reasons why cryptocurrency Ethereum has been on a bull run

• Bitcoin’s rally has almost matured, with a market capitalisation of over a trillion dollars and prices that have risen by over 200%.
  
  
• The 2020 rally for cryptocurrencies also brought institutional investors into the fold.
  
  
• The last reason is the simplest reason of all — the fact that even with its bull run Ether is cheaper than Bitcoin.

The second largest cryptocurrency in the world, Ethereum, has been on its own bull run over the past few months. Things came to a head this week, with Ethereum surpassing $4000 in price point in the last 24 hours. Ether (the token that runs the Ethereum chain) had dropped back to around $3800 at around 7p.m., India time, on May 13, but the coin has outpaced Bitcoin in terms of growth recently, which is saying something.


According to crypto price-tracker Coinmarketcap, Ethereum’s market capitalisation was around $435 billion on May 13. The value dropped by about 13% in the last 24 hours, but trading volumes were up by 52%. While the Ethereum rally began with Bitcoin’s rally near the end of last year, its individual bull run began from around January this year. And there are multiple reasons for that.

Bitcoin rally matured

The price of Bitcoin started going up early last year, as the pandemic drove stock markets down worldwide. Stock prices for companies started falling or behaving erratically, as pandemic-driven lockdowns started worldwide, and supply chains were hurt in almost every industry. As a result, many investors started taking interest in crypto currencies, with exchanges worldwide showing high growth in trading volumes since March last year.


While most of this interest went into Bitcoin — the best known and the largest cryptocurrency in the world — Ethereum too started gaining. About a year since, Bitcoin’s rally has almost matured, with a market capitalisation of over a trillion dollars and prices that have risen by over 200%. As a result, serious crypto players are now turning their heads towards the next best thing — Ethereum.


In short, Ethereum is today where Bitcoin was last year. With more money being put into the coin, the prices are rising sharply now. Ethereum founder, Vitalik Buterin, became a billionaire on May 3, when the currency’s value crossed $3000.


Institutional investors and more acceptance

The 2020 rally for cryptocurrencies also brought institutional investors into the fold. Unlike retail investors, these are big firms and funds, who make investments in millions and can move the market faster than most others. You may have heard of billionaires and celebrities like Tesla founder Elon Musk, television personality and entrepreneur Mark Cuban, and others talking openly about crypto recently. This spurred more and more institutional investors, who would otherwise only be interested in the likes of bourses like NASDAQ etc., towards crypto.


Not only that, everything that affects Bitcoin, affects Ethereum almost equally. In February this year, payments giant Mastercard said it will start accepting crypto on its network in 2021, and other institutions are expected to accept such payments too. All this affects the price of Ethereum, just as it does the price of Bitcoin and other cryptocurrencies.


Ether’s core concept

When Buterin designed the Ethereum chain, he was trying to eliminate the limits of Bitcoin. The Ethereum chain is built in a way that it can work with anything from social networks to entire corporations, not just financial systems. Today, when the acceptance of blockchain is growing worldwide, it’s the Ethereum chain that’s in vogue over Bitcoin — and that’s simply because more applications can be built on top of it.


The Bitcoin chain is built on a “proof of work” concept, whereas Ethereum works on a “proof of stake” system that opens up a world of new options. It can reduce transaction costs, electricity consumption and more. It also allows investors to earn interest on Ether transactions, unlike Bitcoin, where new bits are created when transactions happen.


Ether is cheaper

The last reason is the simplest reason of all — the fact that even with its bull run Ether is cheaper than Bitcoin. While crypto trading is growing, it’s still at a nascent stage, meaning most investors want something they can trust. That’s why most of the money goes towards Bitcoin, Ethereum and Ripple, the three top currencies in the world. Speaking of Ripple, Ether has also gained from the fact that the company behind Ripple has a Securities and Exchange Commission (SEC) investigation going on right now.


Anyway, so when it comes to investing, people want to put their money where they can be assured gains most easily. That’s either Bitcoin or Ether, and one Bitcoin will cost you $50,000 against Ether’s $3803 (at 6.59 p.m., India time, on May 13).