Ether prices are on the move, and they're headed north.
The cryptocurrency, which powers the world's second-largest blockchain, ethereum, has seen its price rise more than 3,000% year-to-date and roughly 180% in the last month, according to data from CoinMarketCap.
Yet, amid this rise, and increase in investor attention, many are wondering how the digital asset's price will perform going forward. That answer, though, may not be exactly clear.
When polled, crypto market analysts provided mixed opinions. Some asserted that ether could experience significant upside in the future, even going so far as to suggest its market capitalization (market cap) could surpass that of bitcoin, long the market's progenitor and leader.
Others, however, warned that ether's price may have become inflated as the broader cryptocurrency space has drawn robust inflows.
Key role of ICOs
One crucial factor affecting ether's price is the rise of initial coin offerings (ICOs) - sales of blockchain-linked data that allow investors to exchange ether for newly created digital tokens.
Some of these offerings have generated significant visibility by selling millions of dollars-worth of tokens in minutes. As a result, ether's value is "hugely related" to these offerings, according to Brad Chun, chief investment officer of hedge fund Shuttle Fund Advisor.
Chun told CoinDesk he believes some companies are simply holding the ether tokens raised through these sales, since retaining the digital assets is more profitable than spending them on projects.
By holding ether tokens instead of spending them, these firms could be placing upward pressure on the cryptocurrency's price, he speculated.
Marius Rupsys, cryptocurrency trader and co-founder of fintech startup InvoicePool, offered similar sentiment. He stated that while most ICOs let investors use bitcoin or ether to purchase digital tokens, some choose ether, a) because they are afraid of missing out and b) its transactions take place more quickly.
"This keeps many ethers locked up in new projects and [fewer] ethers are available for trading," he explained.
Arthur Hayes, co-founder and CEO of BitMEX, also emphasized how these offerings are affecting ether's price. "The value of ether is directly related to the value of [ICOs] listed on the [ethereum] protocol," he told CoinDesk.
Hayes stated that if more highly successful ICOs list on this platform, ether's price could experience significant gains.
"If we get more instant sell outs like [Brave's BAT token], the ether price is a bargain at the moment," he continued.
What the bulls say
Hayes was certainly not the only one to offer a bullish forecast for ether, as some analysts have predicted that the alternative asset protocol will surpass bitcoin, a milestone event they inferred might take place in 2017.
At the time of report, ether's market cap was roughly $24bn, more than half that of bitcoin's $45.8bn, CoinMarketCap figures reveal. Bitcoin's share of the total market cap for all cryptocurrencies has been declining lately, standing at roughly 45% at press time. (This is after hovering above 80% during most of the time for which market data is available.)
While bitcoin was the first cryptocurrency to scale, and has long been the largest in terms of market cap, it could lose this position soon enough, said Tim Enneking, managing director of Crypto Asset Management.
"I think ether will overtake bitcoin, probably before the end of the year," he stated.
Enneking is not alone in this belief, as Sebastian Limeres, a cryptocurrency advocate and Argentine attorney, also predicted that ether's market cap will surpass that of bitcoin either this year or next.
"Ether is the next big thing for being a platform, same as Oracle is to software."
While some market observers are clearly bullish about ether's future prospects, not everyone is so optimistic. Some analysts have warned that ether's price may have grown overvalued.
Their concern is understandable, as the price of many cryptocurrencies has skyrocketed in recent months and ether could simply be one more alternative asset protocol that has surged as a result. The total market capitalization of all cryptocurrencies surpassed $100bn for the first time ever this month, which represented an increase of more than 100% in less than 30 days, CoinMarketCap figures show.
"We're fresh off a speculative bubble across crypto assets, so true valuations won't make much sense right now," Petar Zivkovski, COO of leveraged cryptocurrency trading platform Whaleclub, told CoinDesk. He added: "I think ether is leading the pack in this crypto-inflated bubble."
Zivkovski further asserted that investors are making speculative bets on ether.
"Many investors are betting on ethereum for its future potential, not its current network effects. They see bitcoin as a slow and inflexible cryptocurrency, while ether is adaptable, able to host and run decentralized systems and organizations, and has the backing of a team and corporations with a vision."
Jacob Eliosoff, a cryptocurrency fund manager, told CoinDesk that ether's value may be a bit too high.
"I agree that ether seems inflated," he said. "As a newcomer I'd be very wary of buying in at these prices, but for long-term holders, [it is] safer to ignore the rollercoaster and just hold tight."
The middle line
While many analysts took sides as to whether ether's price is inflated, Rupsys took a more neutral stance, asserting that it is very difficult to answer whether the cryptocurrency is overvalued.
He commented on the supply side, emphasizing that very few ether tokens are available for sale. On the demand side, several factors might provide tailwinds for the cryptocurrency, noted Rupsys. Chinese exchanges have been adding ether-based trading pairs, which could bolster demand for the alternative asset protocol.
He emphasized that in some cases, ether's trading volume has surpassed that of bitcoin's on CoinMarketCap. Ether's 24-hour trading volume reached roughly $1.69bn at roughly 04:30 UTC on 31st May, surpassing bitcoin's $1.55bn.
Since ether does not trade on all exchanges, he said, "This volume is very large and might increase."
"I see very few signs of correction for ethereum as of yet (it moves up, consolidates, then up again)," Rupsys told CoinDesk. "[But] I do keep an open mind and look for weakness signs in ether every day."
Disclosure: CoinDesk is a subsidiary of DCG, which has an ownership stake in Brave.
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