Ether Price Surges 50% as The DAO Draws Trading Interest

Charles Bovaird
May 20, 2016 at 22:39 UTC
Updated May 23, 2016 at 20:25 UTC
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While bitcoin has long dominated the digital currency space, ether has been grabbing headlines – and trading volume – this week as global market participants rally around the digital currency.

The price of ether – the digital currency used by the Ethereum platform – surged by upwards of 50% in the seven days through 20th May, according to figures from US-based digital currency exchange Poloniex.

Bitcoin prices, alternatively, fluctuated less than 5% during the aforementioned time frame.

Ether had an opening value of $10 at 12:00 UTC on 13th May, additional Poloniex data reveals. The currency fell to as low as $9.78 at 08:20 UTC on 14th May, and then lingered near $10 for the next few sessions.

On 16th May, the currency began a sharp climb, culminating in it finishing the week at $14.65. Trading volume rose substantially during the week, as 24-hour volume increased from $12.1m at 11:59 pm on 12th May to $58.3m at 11:59 pm on 19th May.

Bitcoin, on the other hand, had a far less dramatic week, opening at $454.82 and spending most of the week fluctuating between $450 and $460, according to the CoinDesk USD Bitcoin Price Index (BPI). It was on 19th May that the digital currency registered notable declines, falling to a weekly low of $435.62.

The week’s lackluster bitcoin price movements came amid very low trading volume, as Bitcoinity data points reveal market participants traded less than 8m BTC during the seven days through 20th May.

DAO interest rising

Many market observers are crediting ether’s recent price increase to the rise of a distributed organization referred to as The DAO, an Ethereum-based entity which allows market participants to provide both startup businesses and projects with funding – in the form of ether – in exchange for voting rights.

“The desire for many to purchase DAO Tokens” has helped create “a huge amount of cross trading in the BTC/ETH trading pair,” Joe Lee, founder of derivatives trading platform Magnr, told CoinDesk.

“The token sale is structured in a way that for a time after the crowdsale has completed, DAO token holders get a freely exercisable option to either burn or swap the newly minted tokens back for ether,” he continued. “This clever structure has incentivised a large number of ETH holders to take part in the crowdsale.”

Chris Burniske, analyst and blockchain products lead at investment management firm ARK Invest, said he believes the The DAO is likely responsible for ether’s recent price rally.

“The ETH/BTC pair has now appreciated 50% since Monday,” he said.

At press time, the organization has collected more than 11m ETH, worth nearly $160m at current prices.

Building support

While ether experienced a sharp rally during the last week, one market expert highlighted that the digital currency may be retracing old steps when compared to bitcoin.

“Ether is doing the same thing bitcoin is, which is building a support level,” Tim Enneking, chairman of Crypto Currency Fund, told CoinDesk. “The price seems to have stabilized.”

However, as Enneking went on to articulate, there are lingering question questions about the extent to which ether’s rise is a referendum on problems with bitcoin.

“How much of ether’s price is due to its positive aspects and how much can be credited to the failings (or challenges) of bitcoin?” he asked.

While it’s too early to tell, traders are likely to be watching for signs of correlated market movements between Ethereum and bitcoin.

Potential price bubbles

While some have asserted that the visibility surrounding The DAO helped drive this week’s rise in ether prices, others have warned that these gains could be be short-lived.

George Samman, a blockchain advisor and consultant, predicted that the broader markets will expect ether prices to fall once The DAO’s creation phase is over.

“Once DAO ends, it will suck up over 12% of all ether,” he told CoinDesk. “Expect ether to fall right before the DAO ends as people front-run the event.”

Burniske took a different tack, speaking to the price bubbles that could potentially develop in digital currencies.

“The cryptocurrency space is gaining more attention by the day, which can easily lead to tulip-mania and price bubbles,” he said.

Charles L. Bovaird II is a financial writer and consultant with strong knowledge of securities markets and investing concepts.

Follow Charles Bovaird on Twitter here.

Images via CoinDesk, Shutterstock