Hot crypto investments: Ethereum is on the rise

With the recent rebound across cryptocurrencies of various types, it’s time to take a hard look at the ones most likely to return on investment.

The rebound started back in mid-August, when the total value of cryptocurrencies’ market capitalisation surpassed $2 trillion again, the first time they have done so since crashing almost three months prior, according to Forbes.

Markets hitting the threshold marks a bullish recovery, according to most analysts. Bitcoin hit a three-month high on August 22, jumping past $50,000. It has fallen back slightly since on profit-taking. Ether and Binance coin, the next two largest cryptocurrencies, both were up greater than 20 per cent, hitting their own three-month respective highs around that time.

One factor driving this rebound is that the bitcoin ‘whales’ are moving money into crypto markets again. The whales are those who hold a very large amount of bitcoin, but they often invest in other cryptocurrencies as well.

Accounts holding roughly $50 million or more worth of bitcoin have steadily increased their buying since the end of June, according to new data from blockchain firm Chainalysis. Bitcoin whale activity has been tightly correlated to price action this year, with larger investors often acting as a “driving force” in the market, says Philip Gradwell, chief economist at Chainalysis.

Ethereum’s cryptocurrency ether has gotten great advantage from this trend. The smart contracts crypto is up to $3,810 at this writing, a three-month high. Trading intensity is low, meaning that holders of ether are keeping it close and acquiring more.

And analysts are bullish. “Ether is on track to potentially breach the $4,000 resistance level, provided the obvious stack up continues,” Nick Agar, founder and CEO of cryptocurrency firm AXIA Coin, wrote in an email to MarketWatch.

“A number of metrics indicate positive sentiment, including the volume of large transactions of ether, which reached $16.2 billion, the highest since June 22,” crypto analytics firm IntoTheBlock wrote in a series of tweets.

IntoTheBlock’s Hodlers indicator shows that addresses with holdings in $ETH for over 1 year is reaching all time high levels. The chart shows how the number of Hodlers has been increasing non-stop over the past 12-months. And the social media narrative about Ethereum has been extremely positive in recent months, the group adds.

An important part of the Ethereum narrative is the consequences of its London Hard Fork, in particular the doubling of block size and the EIP-1559 operations which manage ‘gas’ fees better.

These took place in early August, and have had the effect of decreasing supply for ether as demand to use Ethereum increases.

The increasing demand is coming from the world of decentralised finance. A decentralised finance (DeFi) system allows people to create financial products or “smart contracts” that execute actions automatically on the blockchain – without any bank, brokerage, exchange, or corporation acting as an intermediary. This freedom has unleashed great experimentation in creating novel uses for the Ethereum blockchain, such as auctioning off non-fungible tokens (NFTs) in what is today a billion dollar market.

At the end of July 2021, the market capital for DeFi products was hovering near $80 billion, but it is expected to triple in size in the coming year. All of this creates demand for ether, and while Ethereum is not the only platform on which DeFi systems operate, it is the main one.

“The recent spike in NFT (non-fungible token) activity has prompted a rise in transaction volume and active addresses on the Ethereum network, as well as a deflationary supply,” writes Alexandra Clark, a trader at UK-based digital asset broker GlobalBlock, in an email to Coindesk.

For the longer term, the sentiment around Ethereum is extremely strong. A panel at Forbes forecast that in the longer-term, ether could hit $17,810 by the end of 2025 and $71,763 by the end of 2030 while 68 per cent of the panel say ether will surpass bitcoin eventually.

The advantage for Ethereum is that is has business applications and so can grow and expand. The supply will be controlled, but probably increased gradually as demand continues to increase – this is made possible by the London Hard Fork which has restructured the Ethereum blockchain from its initial model which was closely based on that of Bitcoin.

Bitcoin, as a system, on the other hand, has remained quite conservative, although there have been some structural changes. The problem of block size, which is limited to 1mb in bitcoin, has drastically limited scalability on that platform, but the decision-makers have refused to make changes up until now. Ethereum, on the contrary, has forged ahead.

Still another positive for cryptocurrencies in general is Google’s recently revised US policies regarding crypto advertisements.

Back in March, Google imposed an overarching ban on almost every crypto product — initial coin offerings, exchanges and wallets.

But as of this week, starting August 3, companies offering cryptocurrency exchanges and wallets targeting the United States market are now permitted to advertise crypto products and services on Google providing they apply for Google certification.

Google’s new policy still comes with much stricter requirements on firms hoping to participate, such as being registered with FinCEN as a money services business or a federal or state banking entity.

But allowing crypto providers to reach customers via Google allowing crypto companies to advertise on their site can only be seen as a win for the cryptocurrency sector, analysts say.