Is Ethereum on track to becoming the next Bitcoin?

Since Bitcoin started gaining popularity in 2013, a number of other cryptocurrencies have surfaced, trying to take a bite out of this emerging market, valued in billions. Among the various digital currencies introduced, Ether or Ethereum has gradually solidified its status as the second-most popular cryptocurrency – and is still gaining popularity. But where are these two currencies headed? Here’s a breakdown of the differences, similarities, and possible future directions.

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.

Despite not being close to Bitcoin’s over $1,200 value, Ether has been growing impressively in recent months. Since being introduced on the eToro platform on January 8th, 2017, Ether has registered incredible gains, quadrupling its value, climbing from a little under $10 to just over $40. The most recent price spike could be attributed to the SEC’s decision denying a Bitcoin-based ETF, which drove some investors to buy Ether as an alternative.

Since Ether is a lot newer, introduced in August 2015, it is still somewhat dependant on the general sentiment towards cryptocurrencies – a sentiment dictated mostly by Bitcoin. Bitcoin has established itself as a popular asset for many traders, since it has big daily percentage swings and has been showing long-term gains overall. However, there are differences between the two cryptocurrencies, meaning each one could be affected by different factors.

What drives Bitcoin prices?

Bitcoin is huge, nearing a market cap of $20 billion. If in the beginning it was exclusively used by cryptocurrency enthusiasts, it has since solidified its status as a legitimate financial instrument in the currency market. As such, Bitcoin could be influenced by changes in the currency market, mainly because it is considered as a safe-haven asset for many traders. For example, when the Yuan was weak in late 2016, many Chinese traders turned to Bitcoin, causing a major price spike.

The SEC’s recent decision to decline a Bitcoin-based ETF is another good example of the forces which affect the cryptocurrency. If approved, the ETF would have signaled Bitcoin’s final induction into mainstream trading. However, since it was not, Bitcoin remains an in-between asset of sorts, existing in its own decentralized form, while still being significant enough to be influenced by market forces.

What drives Ethereum prices?

As mentioned before, Bitcoin is still the benchmark for the market’s overall sentiment towards cryptocurrencies. However, the SEC’s recent decision created a situation which pushes Bitcoin further away from mainstream market, and might be the explanation for Ether’s recent price surge. It is not far-fetched to believe that some cryptocurrency traders are now opting for Ether, since it has yet to face such a trial in the mainstream markets.

Moreover, Ether has established itself in its own right, and is affected by factors that do not relate to Bitcoin. Ether is based on the Ethereum blockchain platform, which offers a variety of decentralized development tools for which Ether could be used as a currency. Therefore, changes in the Ethereum platform could affect the currency.

Whenever the Ethereum platform reaches a “hard fork” (a change in programming that makes it backwards incompatible), Ether could be affected. The effects could be positive, in cases such as increased security or accessibility, or negative such as the DAO hard fork: In June 2016, this hard fork left the door open for a hacker to take control of some $50 million worth of Ether – causing the currency to drop 30% in a day. However, the hack has been dealt with, and Ether has been climbing ever since.

Ethereum vs. Bitcoin

Some might call Ether “the next Bitcoin,” but there are some differences between the two currencies, and it would be wise to familiarize yourself with them before trading Ether:

Crypto Bitcoin Ethereum
Supply Finite. Bitcoin is gradually released into circulation at a diminishing rate, with the intention of having a final amount of 21 million Bitcoin by the year 2140. Infinite. Ether is designed to have essentially limitless mining potential, with a cap of 18 million Ether per-year.
Processing speed Approx. 10 minutes: Considered slower in terms of liquidity. Up to 15 seconds: Higher transaction speed means higher liquidity and volatility.
Creation Bitcoin was created for the sole purpose of being a cryptocurrency. Ether was created to serve as the Ethereum platform currency.
Ownership The majority of the world’s Bitcoin wealth is held by a very small percentage of early Bitcoin miners. Since Ethereum was crowdfunded, the majority of Ether is owned by those who purchased it in advance. It is predicted that the balance will shift towards miners within five years.

Conclusion: Will Ether trump Bitcoin?

It is still too early to determine if Ethereum is the next Bitcoin. If the Bitcoin graph is any indication of cryptocurrency behavior, it is possible that we will see much fluctuation in Ethereum prices in the future. Ether could potentially keep climbing, becoming the silver to Bitcoin’s gold, or even rivaling it. On the other hand, there are several scenarios that could lead to Ether’s demise, such as another hard-fork-related hack, or major drop in Bitcoin prices – which could drag Ethereum down with it. However, Bitcoin has paved the way for Ethereum, making the market more tolerant and accepting to the nature of digital currencies, so we could be at the beginning of the cryptocurrency age, and an era where the world’s most dominant currencies have no physical form.

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.