Ethereum prices continue to surge today, with Ether reaching a new all-time high of US$4,360 just hours ago. Bitcoin’s dominance continues to fall as Ethereum’s market cap rises to over half a trillion dollars.
The Ethereum blockchain is now more valuable than electronics conglomerate Samsung, payments giant Visa and Wall Street mainstay JPMorgan Chase.
While the performance of Bitcoin has been the major driving force for professional and institutional investors getting into cryptocurrency, there is now also a growing investment appetite for Ethereum. There is also excitement in the crypto community regarding the upcoming Ethereum Improvement Proposal (EIP) 1559 — which will be packaged in with Ethereum’s London hard fork this coming July — that could transform Ether into a better store of value by creating more scarcity in the cryptocurrency’s supply.
When Bitcoin first passed a market capitalization of US$1 trillion on Feb. 19 this year, Ethereum had a market capitalization of around US$220 billion, or less than a quarter of the size of BTC. At the time of writing, Bitcoin still has a market cap of around US$1 trillion while Ethereum’s market cap has surged to over US$500 billion, and is now roughly half of Bitcoin’s.
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Despite being recognized as the best-performing asset of the last decade, Bitcoin is rapidly losing its market dominance. Bitcoin represented 70% of the total crypto market at the start of the year but now stands at only 40%. As many investors are just starting to recognize the potential of Ethereum over the long term, they may yet knock Bitcoin off its top-dog perch.
Ethereum’s growing demand
Ethereum has been on a tear since breaking past the US$3,000 level on May 3, with Ether prices appreciating to a new all-time high of US$4,360 today. Multiple factors are driving Ethereum’s price rise, from institutional adoption to decentralized finance (DeFi) and non-fungible tokens (NFTs).
“We know DeFi as the leading driver, but let’s ask ourselves, what else?” said Justin Chuh, senior trader at digital asset investment manager Wave Financial, in an email to Forkast.News. “There are definitely other reasons for this move. Due to stagnating BTC, we’re seeing risk participants rotating over to the second largest and most trusted blockchain technology.”
Chuh also speculated that investors may also be “positioning themselves in front” of upcoming Ethereum ETF launches.
Last week, asset manager VanEck submitted an application to launch the VanEck Ethereum Trust, an exchange-traded fund (ETF) tracking Ether’s price performance, according to its SEC filing. If approved, this would be the first Ethereum ETF in the U.S. Three Ethereum ETFs are currently already in operation in Canada and available on the Toronto Stock Exchange (TSX).
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Another huge stamp of approval for Ethereum adoption is the European Investment Bank recently issuing a US$121 million bond using the Ethereum public blockchain in collaboration with Goldman Sachs, Santander and Societe Generale.
“This transaction marks the EIB’s first step as a pioneer in the use of blockchain technology for the issuance of financial securities,” Bertrand de Mazières, director general of finance at the EIB, said in an official announcement.
Will Ether become a scarce asset?
“We’re also nearing the introduction of Ethereum Improvement Proposal (EIP) 1559 this summer,” said Chuh, of Wave Financial. “Without getting too deep into it, EIP 1559 will change the network’s fee structure, making fees paid to execute transactions more predictable and stable, and ultimately lowering supply.”
Bitcoin has been rising largely due to its recognition as a scarce asset with a supply limited to 21 million tokens. Ethereum theoretically has an unlimited supply, which has led to it being largely ignored as a store of value, but this could change with the implementation of EIP 1559 in July.
This Ethereum Improvement Proposal, which was first proposed by Vitalik Buterin in 2018, aims to introduce a base fee amount to Ethereum transactions. Most importantly, this will add a deflationary mechanism to the economics of Ethereum prices as well as scarcity, which could signal Ether’s transition to a recognized store of value, similar to Bitcoin.
At the time of writing the Ether price is sitting just under US$4,300, around 1.5% down from Ethereum’s all-time high of US$4,360 set earlier today.