How big is the ethereum market? In light of recent developments, answering this question has become more complex for traders and market observers.
Due to the unintended consequences of the ethereum community's decision to create a new version of its blockchain last month, there are now two ethereum markets representing the value of almost identical platforms.
The planned technical change, which at first had seemed to go off without a hitch, soon got a little strange, as a whole ecosystem of exchanges, miners and traders sprung up around the abandoned blockchain.
At press time, this has resulted in a market for tokens trading on two separate blockchains. Ethereum, the blockchain created in the hard fork, had a total market cap of nearly $900m, while ethereum classic's market cap stood at $141m. Ethereum tokens (ethers/ETH) were worth just over $10, while classic ethers (ETC) were valued at $1.70.
For some time, the fork created a field day for traders.
Chris Burniske, blockchain products lead for investment manager ARK Invest, recalled the sudden rise, telling CoinDesk:
"It initially looked like ETC was going to experience a quick death as it was worth nearly nothing and the vast majority of miners were supporting ETH."
After the hard fork was executed, he said, "big players" in the digital currency trading space starting buying "large amounts" of ETC. Further, as those who owned ETH were automatically credited an equal amount of ETC, trading volume surged as speculators sought gains.
"The markets weren't very liquid, and so even a small boost in demand was able to boost the price," he added. "Price appreciation drove interest."
However, now that the dust has settled, market observers are beginning to wonder how long ETC and ETH will be able to coexist. Will the ethereum blockchain be abandoned by developers? Will the new chain be embraced? Or will both stubbornly continue to coexist?
For now, it seems, experts aren't really sure.
Ideology drives fundamentals
While the two blockchains are near identical, some market observers believe the ideological differences create separate price dynamics.
Petar Zivkovski, director of operations for leveraged bitcoin trading platform Whaleclub, spoke to how desires for ideological purity helped fuel the creation of ethereum classic.
His argument is that by rejecting the decision to return funds stolen by the so-called DAO hacker, ETC established itself as a blockchain that would preserve the finality of transactions.
"The rise of ETC is a direct testament to the power of a decentralized, non-governed blockchain system, despite its flaws, and a clear rejection of ETH, which is now regarded by some as a centralized, influenceable system governed by a few enlightened developers," he said.
As traders were drawn to this idea, so were other key blockchain players.
Following the hard fork, as trading volume grew, miners saw value in mining the old version of the blockchain.
Now that ETH and ETC coexist, the more important question is whether this situation is sustainable. Do both markets exhibit the needed fundamentals?
Zivkovski emphasized that the volatility on "ETH-based pairs" remains high, as the ETH currency is just over a year old.
Demand, he said, will be required to keep up this volatility.
"The question that's on every market observer's mind is whether this demand can be sustained," he noted, adding:
"ETH (and ETC) volumes in the recent past have been overwhelmingly speculative, and we all know that speculative demand comes to pass."
Zivkovski asserted that both currencies have yet to define themselves as uniquely as bitcoin, arguing they have limited use as a store of value.
Past that, Arthur Hayes, CEO of bitcoin trading platform BitMEX, emphasized that both markets may be sustained as they have proved profitable for traders.
"Holders of ETH pre-fork have actually increased their wealth since the fork [when you combine] the ETH and ETC prices," he said.
Still, some market observers point to the potential technical limitations of having twin platforms.
After all, the tokens are meant to power decentralized ethereum applications, and it's not immediately clear what having two versions of ether provides developers.
Calibrated Markets LLC's Jacob Eliosoff has argued that having two markets simply isn't practical for end-users.
"'The more the merrier' is a fine philosophy for ideologues and traders, but for people who actually want to run or build smart contracts, two chains are a mess," he said.
He also wondered whether the two blockchains will be able to draw enough developer talent to continue.
Here, Burniske said, he sees ETC at a disadvantage.
"While developer support is growing for ETC, I don't see a cohesive team of rock-star developers moving to support it, in the way that we've seen with ETH," he said.
Burniske noted that, while he doesn't necessarily think ETC will ever "die", he said digital currencies often fade into obsolescence. After all, to remain "alive", the network only requires one mining rig.
Hayes provided the most optimistic view, however, stating that, through clear ideological differences, the two versions of ethereum could continue.
"Both coins can co-exist because they serve different purposes and stakeholders."
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