Price dynamics in the digital asset sector have caught even some experts off guard this week. The most noteworthy move was in the world’s second-most popular cryptocurrency: Ethereum. The price of each Ether is up 33% over the past week and a jaw-dropping 400% year-to-date. Some believe the market value of the Ethereum ecosystem could eclipse the Bitcoin network in the near-future.
Here’s a closer look at what’s driving this shift in investor and developer sentiment.
The law of large numbers
Bitcoin’s value has been relatively range bound since February. At the time of writing, each BTC is worth $57,420. That’s the same price it was trading at on February, 21.
Part of the reason for Bitcoin’s stagnation could be the law of large numbers. At its current value, the market capitalization of the Bitcoin ecosystem is roughly $1 trillion. That makes it one of the most valuable assets in the world, larger than most publicly-traded corporations and the GDP of several nations. At that scale, incremental growth is more difficult since the base is already too large.
For instance, an additional billion in investor inflow will only add 10% to BTC’s value, while it would have added 100% a year ago.
Ethereum’s development ecosystem
Ether has been surging ahead as adoption expands. The market value of the Ethereum ecosystem is now hovering at $480 billion – roughly half the size of Bitcoin’s overall value. If it can sustain its current bull market, Ether’s market value could surpass Bitcoin relatively shortly.
Driving this unprecedented surge is the growing utility of the Ethereum network. In recent years several kep applications have emerged on this decentralized protocol. According to Dapp Radar, the most popular Ethereum projects are decentralized exchange Uniswap, NFT marketplace OpenSea and NFT art engine CryptoPunks.
Growing interest in Decentralized Finance, or DeFi, could be another engine driving Ether higher. Rumors suggest hedge fund billionaire Daniel Loeb could be staking his crypto assets, making him perhaps the first celebrity billionaire to adopt DeFi.
A growing number of users have considered borrowing or lending cryptocurrency to boost returns. The confluence of smart contracts and digital currencies is leading to innovative new financial products, such as flash loans, no-loss lotteries and streaming money. The staking, lending and borrowing of digital assets could be becoming more mainstream, which is probably pushing network fees higher on Ethereum.
Put simply, greater utility and adoption is making ETH nearly as valuable as BTC.
Ethereum has outperformed in recent months. The value of the network is now roughly half the value of Bitcoin’s combined market cap. Some believe the two could switch places, which would make Ethereum the world’s largest cryptocurrency project.
For now, mainstream adoption of Ether is still nowhere near BTC. However, as developers add new and unique decentralized applications and financial products to the network, its growing utility could drive prices higher.