Many cryptocurrencies experienced a pullback a couple of years ago due to rising interest rates, pushing investors toward safer options. However, three main factors have boosted the overall market this year: the expectation of lower rates, the approval of the first Bitcoin spot exchange-traded funds (ETFs) in January, and the Bitcoin halving in April.
Now that the Bitcoin halving has been completed, reducing mining rewards every four years, it appears there could be fewer short-term triggers for Bitcoin’s growth. So is it time to look to Ethereum, the second-largest cryptocurrency, for potentially bigger gains this year?
Ethereum vs. Bitcoin: Key Differences
Ethereum’s native token, Ether, operates on the Ethereum blockchain, launched in 2015. Initially, Ethereum used the same energy-intensive proof-of-work (PoW) mining method as Bitcoin. However, it switched to a more energy-efficient proof-of-stake (PoS) method in a process called The Merge in 2022. This transition reduced Ethereum’s mining energy usage by 99.95% and made it deflationary, meaning that more coins are burned (removed from circulation) than are created. PoS blockchains also allow investors to stake or lock their tokens to earn interest-like rewards.
The Ethereum blockchain was designed to support smart contracts, which enable the creation of decentralized applications (dApps), smaller tokens, and other crypto assets. In contrast, the Bitcoin blockchain is primarily used to mine more coins. This distinction leads to Ethereum being valued for its expanding developer ecosystem, while Bitcoin is often compared to gold or silver.
This key difference led the US Securities and Exchange Commission (SEC) to classify Bitcoin as a commodity, supporting the approval of the first Bitcoin spot ETFs. However, the SEC has been reluctant to classify Ethereum and other PoS coins as commodities, suggesting that the staking process converts them more into securities. Despite this, the SEC allowed the first applications for Ethereum spot price ETFs earlier this year.
Ethereum Outlook and Challenges
Ethereum’s potential approval of its first spot ETFs is a major near-term catalyst. The SEC has reportedly granted preliminary approvals to at least three of the eight planned spot price ETFs, with most expected to begin trading as early as July 23. The price of Ethereum is already up about 50% this year, and the introduction of spot ETFs could boost it even further. For reference, Bitcoin’s price rose more than 40% following the approval of its first 11 ETFs on January 10.
Another major catalyst is Ethereum’s recent Dencun upgrade, which increases its speed and reduces gas fees (network user fees) for its Layer-2 blockchain. Additionally, stabilization and declining interest rates could attract investors to Ethereum and other cryptocurrencies.
However, Ethereum still faces some challenges. The Dencun upgrade has made Ethereum inflationary again, meaning its supply will increase unless more tokens are burned. It also processes transactions more slowly than newer PoS blockchains like Solana and Cardano, which could hinder the growth of its ecosystem.
Additionally, Ethereum’s planned spot ETFs will not include staking mechanisms like their underlying tokens, making them less attractive than directly owning the cryptocurrency. Finally, the market’s anticipation of lower rates and ETF approvals may already be reflected in its current price.
Is Ethereum an obvious buy right now?
Currently trading at around $3,400, some optimistic investors believe Ethereum could see significant gains in the coming years. VanEck’s Matthew Sigel and Patrick Bush predict its price could more than triple to $11,800 by 2030, while Ark Invest’s Cathie Wood suggests it could reach a staggering $166,000 by 2032.
While these predictions should be taken with a grain of salt, Ethereum spot price ETF approvals and the expectation of lower interest rates could limit its downside this year. The Ethereum network’s next planned upgrade, Pectra, aims to further increase its speed and reduce gas fees, helping it compete with Solana and Cardano. Therefore, Ethereum is still a solid cryptocurrency to consider hoarding, but investors shouldn’t expect it to skyrocket in the immediate future.
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