Bitcoin (BTC) has been dominating the cryptocurrency market, with a 125% increase in price over the past year. This can be attributed to the excitement surrounding spot Bitcoin exchange-traded funds (ETFs). However, Ethereum (ETH) has also seen a significant 80% return during the same time period. According to Wall Street analyst Geoff Kendrick, head of digital assets research at Standard Chartered Bank, Ethereum has the potential for even bigger gains in the future, with a predicted price of $14,000 by 2025. This implies a 310% upside from its current price of $3,400, making it a promising investment option in a relatively short period of time.
One of the factors that could increase demand for Ethereum is its smart contract technology. This allows developers to create self-executing programs known as smart contracts on the Ethereum blockchain. This technology serves as the foundation for tokenization, as well as other decentralized finance (DeFi) applications. The numerous utilities of smart contracts have the potential to drive up demand for Ethereum in the coming years.
Tokenization is the process of representing ownership rights to digital and physical assets as tokens on a blockchain. This can improve transparency and auditability, as well as increase asset liquidity by allowing fractional ownership of assets like real estate and collectibles. Additionally, DeFi platforms built on Ethereum have the potential to expand access to financial services and reduce costs, particularly in underbanked regions of the world.
Ethereum currently holds a majority market share in the DeFi space, with 56% of funds held in its blockchain, according to DeFi Llama. This indicates a strong preference for Ethereum among users, which could drive up demand for the cryptocurrency in the future. This is because users must pay transaction fees to interact with products on the blockchain, making Ethereum a valuable asset.
Another factor that could increase demand for Ethereum is the potential approval of spot ETFs. These investment products would provide direct exposure to Ethereum without the hassle of cryptocurrency exchanges and blockchain wallets. This could reduce friction for individual and institutional investors, leading to increased demand for Ethereum and a potential increase in its price.
Recent approval of spot Bitcoin ETFs by BlackRock and Fidelity has shown the potential demand for such investment products. In fact, these ETFs saw greater cash inflows during their first month on the market than any other ETFs launched in the past 30 years, according to Bloomberg Intelligence. Seven issuers, including BlackRock and Fidelity, have submitted applications for spot Ethereum ETFs, but the Securities and Exchange Commission (SEC) must reach a decision by May 23. However, it is not guaranteed that these applications will be approved, as the SEC has not engaged with potential issuers to the same extent as it did with spot Bitcoin ETFs before approval.
Investors should carefully consider their options before buying Ethereum. While the potential for smart contract technology and DeFi applications is exciting, widespread adoption may still be a ways off. Additionally, there are doubts about the approval of spot Ethereum ETFs in May, as the SEC is currently investigating the Ethereum Foundation as part of its push to classify many cryptocurrencies as securities. Therefore, it may be wise to explore other investment opportunities, such as Bitcoin and the stock market, before making a decision on Ethereum.
[Disclosure: The writer of this article, Trevor Jennewine, has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.]
