By Tyler Durden
It’s not just Bitcoin anymore. Digital currencies have another big winner now, Ethereum (ether), and as Lombardi Letter’s Benjamin Smith explains below, it’s more than just good news for early investors.
Ethereum topped $300 for the first time this morning…
Increasing its relative share of the cryptocurrency market notably (as Bitcoin’s market share drops below 50%)…
The Ethereum price explosion ultimately signals digital currencies aren’t just flash-in-the-pans; they are morphing into legitimate alternative assets nudging their way into the mainstream.
Arguably, the biggest proof of cryptocurrency transcendence has been the upswing in institutional involvement. This is the “smart” money that generally calls trends correctly. It’s one thing for mom & pops investors to move the needle higher in a limited way, as was the case with early adopters. It’s quite another for price and volume to skyrocket in unmistakable fashion due to billions in cash infusions by institutions investors. Beyond the obvious price appreciation, institutional participation also signals a deeper confirmation of the long term viability of the asset. It tells us all those multinational and governmental pilot projects worldwide are yielding positive results.
Our bitcoin price forecast foresaw the growing sector institutional interest gathering on the periphery. And aside from the conservative nature of the forecast, our prophecy was dead-on.
Frequent CNBC cryptocurrency analyst Brian Kelly has recently suggested Bitcoin’s May 2017 surge past $1,500 was the result of greater institutional demand – particularly from Japan. “The biggest driver right now is you’re starting to see institutional investors take a keen interest in the entire sector,” said Kelly, who himself has launched a digital asset fund for outside investors. Likewise, CoinDesk research analyst Alex Sunnarborg attributed Bitcoin’s price explosion to a spike in global trading volume, particularly from Japan. (Source: Bitcoin jumps to a record, nears $1,500 on a spike in demand from Japan, CNBC, May 2, 2017)
It’s now quite apparent the same institutional interest dynamics buttressing Bitcoin prices have migrated to Ethereum. In hindsight, the reason seems obvious: if you believe in the long-term viability of cryptocurrency sector, it stands to reason multiple “winners” will emerge, as opposed to just one. With a maximum of 21 million Bitcoins that could ever be in circulation, it’s clear the market could support other alternatives. Clearly, institutional investors have crowned Ethereum next in line.
Early indications of a powerful surge in capital flows could be seen back in March 2017. Vice president for Genesis Global Trading, Martin Garcia, noted that they “started to see institutional investor interest pick up in ethereum, something we hadn’t really seen before.” While other industry gatekeepers noted high-net worth trading in ethereum has picked up considerably. (Source: Ethereum’s Price Surge is Sparking Institutional Investor Interest, coindesk, March 17, 2017)
To demonstrate how powerful institutional-infused investment capital has elevated the Ethereum price, one only has to glean a 2017 daily chart. Prices have entered full mania mode, jumping from just over $8 at the beginning of 2017 to over $300 as of this writing In percentage terms, that’s an increase of 3,650% in only half a year!
Bitcoin’s percentage gain is more modest due to the law of large numbers, but impressive nonetheless. It began 2017 trading around $1,000 in USD terms, but has jumped to $2,820 as of this writing. That’s an increase of 282% which makes it hands-down the top appreciating recognized “currency” in the world.
The last time investors witnessed these types of frenzied moves was during the late 1990’s Tech Bubble. Once institutional money got involved, “modest” moves in equities (pennies to single digits) turned into a full-blown mania (single digits to triple digits; quadruple digits in some cases). A considerable washout of excesses occurred, but the internet winners went on to soar in price to new heights.
We expect the same dynamics are at play with cryptocurrencies today.
Ethereum price up Is? Is It Still A Good Investment 2017?
At these nosebleed levels, investing in ether is not for the faint of heart. As mentioned, prices have increased over 3,100% year-to-date and show no signs of abating. In terms of timing, the low hanging fruit has already been plucked. I would imagine it’s almost impossible to stake a significant position at these levels, no matter how bullish your long terms sentiments are.
But that doesn’t mean you should forget about it either. Rather than focusing on incredible short term price movements, mindsets towards ethereum future value predictions should instead shift to a long term perspective. While the “easy” early-adopter money is gone, we may be only entering the third inning in terms of overall ethereum price outlook.
Why? Because even after this incredible run, total market capitalization is only around $23 billion. For perspective, if Ethereum was a stock, it’s overall value would barely crack the top 300 issues in the S&P 500. With all the business and transaction potential amassing down the pike, ethereum will deservedly command higher valuations than many obscure companies ahead of it should its potential be fulfilled. The last part of that sentence will ultimately tell the story.
Ethereum vs Bitcoin
The Ethereum vs bitcoin debate really comes down to which cryptocurrency is perceived to hold the longest term value. Strong arguments can be made either way, but from our perspective, ethereum has some important characteristics which give it a competitive advantage.
The first of which relates to transaction times. It currently takes about 12 minutes on average to confirm a Bitcoin transaction, while it takes Ethereum is only around 12–15 seconds to do so. Ethereum’s “GHOST” protocol can process greater data loads and in greater speeds than Bitcoin’s peer-to-peer cryptographic protocol. This advantage cannot be understated.
Secondly, Ethereum has the ability to run “smart contracts,” which are code functions which can handle legal functions, data storage, information processes and more. Bitcoin, not so much (although this may be changing soon). This gives Ethereum the prime advantage of added utility over just being a currency. Should Bitcoin not keep pace with Ethereum in this arms race, Ethereum could see better adoption rates.
Looking forward, our ethereum price prediction 2017 is $150, tempered by the unsustainable gains it has achieved thus far. Obviously, we would exercise extreme caution here, as short term prices have jumped ahead of fundamentals. Mean regression could easily take Ethereum price back towards $100 (or firm support at $50) once the mania dies down; similar to the consolidation phase experienced in Bitcoin during its first two bubble runs.
However, we are staunch longer term bulls who truly believe in the transcendent qualities Ethereum and other select cryptocurrencies possess. The sky’s the limit, but we believe investors should now focus on long term accumulation strategies at select price points. Employing this method should yield the best long term results, while avoiding painful “stop out” which can jiggle investors out of positions and tie up capital.