Bill Gates discusses Bitcoin in 2018
Last year, Ethereum (ETH) crashed below $100 (£72) in spectacular style having reached a peak of nearly $1,200 (£863) in early 2018. But over the last 12 months, the tide has turned and the cryptocurrency has risen beyond its previous peak to hit a series of all-time highs – including a record yesterday of $3,456 (£2,487). Its gains are impressive when compared to Bitcoin (BTC), which too has hit all-time highs this year, but ETH has “outperformed” BTC by a factor of three-to-one – with a market cap roughly one third its size.
Last week, JPMorgan published a report entitled 'Why is ETH outperforming?' where analysts at the firm’s Fixed Income Strategy for the US predicted more of the same.
They wrote: “In recent days, one of the more interesting developments in cryptocurrency markets has been the outperformance of ETH relative to other tokens.”
Noting that Bitcoin is “more of a crypto commodity than a currency,” experts stated that “ETH is the backbone of the crypto-native economy and therefore functions more as a medium of exchange”.
Many investors, including billionaire Mark Cuban, claim that Ethereum's decentralised, open-source blockchain with smart contract functionality will trump Bitcoin because it is “easier to use”.
Blockchain technology enables the existence of cryptocurrency and a smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.
This allows for trusted transactions and agreements to be carried out without the need for a central authority, legal system, or external enforcement mechanism.
Bitcoin – the largest and most widely used cryptocurrency – does not currently offer support for complex smart contracts.
Analysts at JPMorgan asserted that “owning a share” of this technology “is more valuable” and therefore “ETH should outperform BTC over the long run”.
The report adds: “Both BTC and ETH markets experienced a comparable liquidity shock earlier this month which triggered a comparable de-levering of their perspective derivatives market in subsequent days.
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“But ETH spot market depth has recovered quicker and if anything liquidity conditions on some exchanges is better than prior to the event.
“High-frequency cash basis pricing reveals a much smaller impact in ETH markets despite optically comparable net liquidations.
“Open interest data also suggests that the other side of these trades was easier to source.”
And they expect much of the same in the future.
The report continues: “Higher turnover on the public ETH blockchain means a noticeably higher fraction of those tokens can be considered highly liquid, further blunting the impact of futures liquidations.
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“In the case of Ether versus Bitcoin, there is evidence of more resilient liquidity, less reliance on derivatives markets to transfer and warehouse risk, and more durable underlying demand base – for now at least.
“In combination with the continued growth of decentralised finance and other components of the Ethereum-based economy, this suggests some technical but occasionally important bullish tailwinds versus bitcoin.
“ETH valuations may be less dependent on levered demand than BTC, a technical but occasionally important tailwind going forward.”
Britain’s Financial Conduct Authority (FCA) has previously warned against investing in crypto.
It stated: “If consumers invest, they should be prepared to lose all their money.
"Some investments advertising high returns from crypto assets may not be subject to regulation beyond anti-money laundering.
“Significant price volatility, combined with the difficulties valuing [Bitcoin] reliably, place consumers at a high risk of losses.”
Express.co.uk does not give financial advice. The journalists who worked on this article do not own cryptocurrency.
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