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2021 has been a mixed year for Ethereum. The year started on a cryptocurrency bull run mainly fueled by the macro shocks caused by the global pandemic of Covid-19.
There were fears of massive inflation due to the huge stimulus governments were issuing across the world making cryptocurrencies the go-to hedging choice.
This led to increased interest in the crypto assets both by the institutional and retail investors. An increase in demand was one of the huge price drivers across cryptocurrencies with some recording price jumps by over 1000%.
Below is the Ethereum price chart from the end of 2020 to date. From the chart, you can see there was a huge bull run during the first months of the year indicated by the green arrow.
Within that period of 6 months Ethereum price moved from $500 to over $4000. The highest price ever in history.
ETHEREUM PRICE CHART.
Since the all-time high price, Ethereum’s price has pulled back by over 50 % as shown on the chart by the red arrow. As I write this article, ETH is trading just above $2100.
One thing to note is the pullback is almost across all major cryptocurrencies.
For us to understand why we are in a price downfall, we need to remember what caused prices to move up. The COVID-19 threat has been greatly downgraded and governments are no longer offering stimulus (printing money) as they did last year.
Although the challenges of the so-called quantitative easing are still being felt, investors have gained some confidence in the regular currencies thus reducing their demand for cryptocurrencies.
Need for hedging in deflationary assets has declined as the global markets return to normal.
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Most countries have returned to the normal production levels making investors more comfortable maintaining their traditional portfolios. The bear run currently in play could continue as interest and confidence in the crypto market reduces.
Cryptocurrencies are highly volatile investment assets. Price movement by over 50 % is not uncommon. Limited regulations and lack of real-life uses are some of the causes for this volatility.
However, I believe ETH holds an advantage against its peers and will make it out of this downfall stronger. The reason why I believe so is the fact that Ethereum is more of a technology platform than a currency.
This could ultimately give it a longer lifespan and relevance compared to its peers.
As a technology, Ethereum has gained additional uses including;
Crypto currency development
Ethereum technology offers a platform that supports the creation of cryptocurrencies. A case scenario is the Shiba Coin (SHIB). SHIB is an ERC-2O token developed on the Ethereum blockchain.
You will also find out that in most exchanges, you can only acquire SHIB through Ether. This is a case use of how ETH has positioned itself. It gives it an edge against other coins whose only use is transactional.
Ethereum has market leadership and minimal competition so far.
This makes it easier for the crypto developers in the future as they could just plug and play. It has already happened with the Shiba coin and I expect to see more coming up.
In the long term, this capability could be a value creator for Ether.
Non-Fungible Tokens (NFT) Development
Non-Fungible Token is a new concept that is really gaining traction across the world in facilitating buying and selling of digital images, music, and videos.
They utilize the concept of smart contracts and proof of ownership. Smart contacts were first introduced through the Ethereum network and have recently gained use in facilitating NFTS.
Today, millions of dollars are exchanged through the NFT platforms on a daily basis. They have made it easier for content creators to monetize their work without the need for third parties that traditionally existed.
NFTS developed on Ethereum blockchain ERC-721. This capability to offer smart contracts I believe will give Ethereum value in the long term.
The biggest threat to cryptocurrencies is the lack of real-life uses. This is why some have been referred to as Ponzi schemes. There are hundreds of cryptos in circulation offering no value at all.
Without real-life use, cryptocurrencies remain just speculative assets. If the speculative value diminishes, then there is a high chance they will crash.
The crypto market leader without any doubt is Bitcoin. It is the most famous and most valuable crypto in the market followed closely by Ethereum.
It is my assessment that Ethereum actually offers mover value than Bitcoin. Bitcoin has only placed itself as a transactional currency. It has no other uses hence if that role fails, there is a high chance it will be less valuable.
In recent days, there has been activity from the governments on cryptocurrencies. However, this is more on the transactional side.
Any cryptocurrency trying to compete with the existing monetary systems will always attract government attention. Some of these actions include complete bans.
To manage this threat, cryptocurrencies have to diversify. A key path that Ethereum has taken. It will be hard for the government to ban the NFT market for example.
This is because it has little impact on the government side. Actually, there is a high chance government will welcome it as it opens upmarket and opportunities for content creators.
Working with the government is the only sure approach to having cryptocurrencies succeed. The majority of creators have learned this and are trying to position their currency in uses that governments will support.
Blockchain has more uses than just the creation of cryptocurrencies. The ledger technology blockchain offers could be useful across many industries.
Actually, major industries are exploring and intending to adopt blockchain soon. They range from governments, engineering, and banking industries.
By positioning itself as a technological blockchain platform, Ethereum could become a key pillar supporting other industries in developing blockchain solutions.
This I believe will make Ethereum more attractive and valuable making its price surge.
Based on the above analysis, I believe ETH is actually undervalued. It has the potential to become the most valued cryptocurrency in the world.
It just depends on how it positions itself. In recent years, we have seen competing cryptos come up but I believe Ethereum is so much ahead and enjoys market leadership advantages.
It doesn’t mean it can’t fail but based on the past, Ethereum could actually outdo bitcoin and become the market leader in the long term.
Disclaimer: This is just an opinion article and should not be taken as investment advice. You should only invest money that you are willing to lose.
What are your thoughts on this? Let me know in the comment section below.