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With the launch of Ethereum on the eToro platform, we wanted to give you a handy guide to this cryptocurrency. Here’s what you need to know in order to integrate Ethereum into your trading strategy.

The launch of Bitcoin in 2009 created a new form of currency, called a cryptocurrency, whose existence is entirely digital. It is no surprise that other such currencies were quick to emerge, and one of the most recent ones is Ether – the second-largest cryptocurrency. Similarly to Bitcoin, Ether (ETH) is decentralized, therefore, it is less-affected by changes in the currency market. Now, you can trade Ether via CFD on the eToro platform.

Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.

What is Ethereum?

Launching in 2015, Ether was created as a currency leaning on Ethereum technology. Similarly to Bitcoin, Ethereum is a blockchain-based system. However, unlike Bitcoin, which created for the sole purpose of serving as an alternative currency, Ethereum could be used to create a variety of decentralized applications. From a trading standpoint, the focus is on the Ether currency, since it serves as an alternative to traditional currencies.

Ether launched in August, 2015. Initially, Ether price was valued at around $2.8, and has seen steady increases since. The all-time Ethereum price high was $21.5, and it is currently trading around $12, with a market cap of just over $1 billion. Unlike Bitcoin, Ether has yet to solidify its status as a mainstream currency, and therefore it is mostly affected by events immediately related to its development.

Ether vs. Bitcoin: Main differences

  1. Ether was not created to replace currencies: While Bitcoin was conceived as a form of alternative payment, the Ether currency was initially created to serve the users of the platform, as an Ethereum wallet to use with the apps they develop.
  2. Ether’s supply is infinite: While the supply of Bitcoin is finite (scheduled to cease in the year 2140), Ether has no top limit, and currency supply is driven by its creators and miners.
  3. Bitcoin is slower: A Bitcoin transaction takes some 10 minutes to complete, and Ether transactions are processed within approx. 15 seconds, contributing to its liquidity and volatility.
  4. Ownership: While almost all of the Bitcoin in existence was mined by early adopters, Ether’s launch was crowdfunded, meaning most of the currency is owned by people who purchased it. It is predicted that the balance will shift in favor of the Ethereum miners within five years.

What drives Ether prices?

Internally, Ether price is driven by changes in the Ethereum platform. Ethereum is constantly progressing, and periodically reaches milestones known as “hard forks,” which change the way the platform works in a way that makes it backwards incompatible. Each hard fork is designed to add stability and improve the platform’s overall function. However, the third hard fork, known as the DAO, which launched in June 2016, inadvertently opened the door to a hack that took control of Ether worth $50 million. This led to a crash in Ether prices, losing 30% of its value. However, the platform has been modified since, and the hack was dealt with, causing prices to revert back to gains.

Externally, one of the most influential factors driving Ether prices is Bitcoin. Since Bitcoin is the largest and most popular cryptocurrency, when its price shows significant increases, other cryptocurrencies are also perceived as viable investment options, and rise accordingly. Naturally, since Ether is the second-largest cryptocurrency, it could also be affected by such events.

Trading Ether

Since its introduction, Ether has displayed high volatility at times, with the biggest single-day change being 30% following the DAO hard fork hack. Therefore, it has attracted many day-traders, who wish to profit from such fluctuations. Alternatively, Ether has become a hedging tool for Bitcoin traders. Unlike Bitcoin, there is no top limit for the amount of Ether to be introduced into the market through Ethereum mining, and Ethereum users who contribute computing power to the platform could mine the currency, which results in 5 Ether to be created every 15-17 seconds.  

Ether could be suitable for both day-trading and long-term investment. Day-traders could try and profit during times of high volatility, staying up-to-date on hard forks, Bitcoin prices, the Ethereum chart, and other events which could influence Ether price. Long-term investors might view it as “the next Bitcoin,” investing in it today with the hopes that it will show significant gains, like Bitcoin did in its early days.

The introduction of Ether on the eToro platform gives traders and investors a new way to diversify their portfolios. Since there are no overnight fees for Ether on the eToro platform, long-term investors could take a buy-and-hold mentality, if they believe that prices will rise in the long run.

Cryptocurrencies can fluctuate widely in prices and are therefore not appropriate for all investors. Trading cryptocurrencies is not supervised by any EU regulatory framework. Your capital is at risk.