Bitcoin and Ether have garnered a lot of attention this year due to explosive surge in prices as also extreme volatility. Ether or etherum had surged to about $400 in June, up almost 5,000% from $8 in January.
This week, it fell to below $200, down more than 50% from the recent high but still up more than 2,000% year-to-date. Bitcoin, on the other hand, is up about 125% this year. (Read: Bitcoin ETF—The Skyrocketing Cryptocurrency Explained)
While bitcoin is arguably better known, ether is fast catching up. At this pace of growth, ether, which was founded just about two years back, could become the dominant digital currency in the world in the coming months.
There are several reasons for ether’s rising popularity. Ongoing feud among bitcoin developers, miners and technical experts over how to expand its processing capacity in order to meet increased demand has also led many investors to ethereum.
The bitcoin network currently imposes a limit of seven transactions per second, which has slowed trading and resulted in higher fees. Some believe that bitcoin would eventually be split into two forms.
According to a recent survey of digital currency users, 94% of the respondents were positive about the state of ethereum, versus only 49% positive about bitcoin.
Per Coindesk, some of the negativity toward bitcoin results from surge in the transaction fees and long processing times. Another reason was many users view bitcoin as less of a digital currency and more of a digital gold or store of value, whereas they believe that ether could function as a currency. (Read: Gold ETFs Awaiting Bullish Reversals in Second Half of 2017?)
Bitcoin’s reputation has also been hurt by recent global cyberattacks where ransom was demanded in bitcoin.
Ethereum has won approval from some of finance and tech giants like JPMorgan Chase (JPM - Free Report) , Microsoft (MSFT - Free Report) and IBM (IBM - Free Report) , which have teamed up with many other companies to form the Enterprise Ethereum Alliance, which will develop standards and technology for ethereum blockchain.
Like bitcoin, all of ether’s transactions are recorded in a ledger called blockchain, where users remain anonymous. Additionally ether’s software enables creation of online markets and programmable transactions known as smart contracts.
So, ethereum provides a global computing network or a platform, where decentralized applications, or Dapps can be built. (Read: 3 ETFs Loaded with Positive ESP Stocks)
Is the Digital Currency Boom Boosting Nvidia and AMD?
Rising demand for graphic processing units (GPUs), for self-driving cars, data centers and gaming, are boosting the shares of Nvidia (NVDA - Free Report) and Advanced Micro Devices (AMD - Free Report) .
Another area where demand for GPUs is rising is digital currency mining. Per RBC Capital, 100 million worth of GPU processors were added to the ethereum mining networks in just 11 days in June.
Will We See an Ethereum ETF Before a Bitcoin ETF?
SEC is currently also reviewing an ethereum ETF proposal, filed by the backers of the EtherIndex Ether Trust . Earlier in March, the SEC had rejected the bitcoin ETF proposals by Winklevoss twins and SolidX Management. The third one proposed by Grayscale’s Bitcoin Investment Trust (GBTC) is being reviewed.
Some believe that the ethereum ETF has better chances of getting approved due to ether’s corporate backing and wider acceptance.
The Bottom Line
While the market for digital currencies is slowly becoming more mature, investors should be prepared to stomach violent price swings. The recent trajectory of digital currencies looks unsustainable, but it is very hard to predict whether or when the bubble will burst.
In fact, trying to predict the future direction of digital currencies may be a fool’s errand. But at the same time, digital currencies are assuming a greater role as medium of exchange and store of value and their importance will grow immensely in the coming years.
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