Ethereum’s big moment has arrived with the launch of five spot ETFs.
Earlier this year, Ark Invest’s Cathie Wood stunned cryptocurrency investors by predicting that Bitcoin ‘s (BTC -1.06%) price would reach $1.5 million by 2027. Back in April, Wood believed that the recent approvals of the first exchange-traded funds (ETFs) based on Bitcoin’s spot price, more institutional purchases, and the then-impending halving of Bitcoin’s mining rewards (making it twice as hard to mine the cryptocurrency) would drive a stampede of bulls to the world’s largest cryptocurrency.
Wood also made some bullish predictions for Ethereum (ETH -1.28%), estimating its market cap could exceed $20 trillion by 2032. That would mean a market price of more than $166,000 per Ethereum coin.
Recent updates and analyses have added new perspectives on Ethereum’s potential. The Bitcoin halving is in the books, the initial spot Bitcoin ETFs have been on the market since January, and the first Ethereum ETFs followed suit this week. So what’s next, and is Ethereum still a good investment?
How is Ethereum different from Bitcoin?
Ethereum differs from Bitcoin in three important ways.
- First, miners can mine for Bitcoin tokens on the Bitcoin blockchain. Mining isn’t a thing on the Ethereum network anymore, but developers can create their own tokens, decentralized apps (dApps), and non-fungible tokens (NFTs) based on Ethereum tokens. That flexibility makes Ethereum a core pillar of the Web3 movement, which aims to disrupt centralized app platforms like Apple ‘s App Store and Alphabet ‘s Google Play with decentralized applications and payment methods.
- Second, Ethereum requires much less electric power than Bitcoin. The Ethereum Network previously used the same energy-intensive proof of work (PoW) mining method as Bitcoin and the cryptocurrency was a popular alternative for crypto-mining enthusiasts with high-end graphics cards. In September 2022, Ethereum transitioned to the more energy-efficient proof of stake (PoS) method. That transition reduced the network’s total mining energy consumption by 99.95%. Ethereum bulls believe that upgrade will make it easier to expand the Ethereum Network and support more Web3 projects in the long run.
- Third, and arguably most important, Ethereum can execute so-called smart contracts. These digital contracts have agreements directly written into code. The Ethereum platform continuously checks whether any of its active contracts have met their terms, and if so, executes some code. This code can transfer ownership of physical or digital assets, move money or cryptocurrencies between different accounts, and more. This ability allows for the automation and decentralization of various applications and processes.
What are Ethereum’s main catalysts?
Ethereum is now the world’s second-largest cryptocurrency after Bitcoin. It’s also one of eight cryptocurrencies on the New York State Department of Financial Services’ “green list” of pre-approved cryptocurrencies. That relative stability led the U.S. Securities and Exchange Commission (SEC) to approve spot Ethereum ETFs in theory, followed by a real-world launch on the Cboe exchange on Tuesday, July 23.
The SEC recently reiterated its view that Bitcoin was the only cryptocurrency that could be classified as a commodity instead of a security since it uses the PoW method, which arguably makes it comparable to physically mining precious metals. That’s consistent with Bitcoin’s original design document, which compares the power-hungry number-crunching system to mining physical gold. The SEC said the PoS method, while more environmentally friendly, makes the cryptos that use it more similar to derivatives contracts — so in the regulator’s eyes, Ethereum is more similar to a security than it is to a commodity.
But despite that, Ethereum’s periodic burning of its tokens could stabilize its price in the near term. The upcoming upgrades for the Ethereum Network could also make it even easier to facilitate financial transactions and develop more decentralized tokens and apps. More companies could also begin accepting the Ethereum coin as a payment option, and institutional investors could accumulate more of the crypto through easily accessible spot ETFs.
Market update
British multinational bank Standard Chartered has made bold predictions for Ethereum.
Four months ago, analysts from the bank claimed that Ethereum could hit $8,000 by the end of this year and $14,000 by 2025, contingent on the approval of spot Ethereum ETFs. Near the end of May, Standard Chartered doubled down on its price targets due to the potential for significant inflows into Ethereum upon ETF approval. The bank estimated that spot ETFs could drive fund inflows of 2.4 to 9.2 million Ether in the first 12 months. That works out to an injection of approximately $15 billion to $45 billion into the Ethereum ecosystem.
If Bitcoin reaches $200,000 next year, as Standard Chartered projects, the bank expects Ethereum prices to reach roughly $14,000 over the same period.
Should you believe Wood’s and Standard Chartered’s bullish predictions?
Investors should take Wood’s $166,000 price target with a grain of salt. First, the famed growth investor has made plenty of wrong calls. Her firm’s flagship Ark Innovation ETF (ARKK -3.62%) has actually declined by 4% over the past five years while the S&P 500 rose by 84%. Ark also offers its own Ethereum futures ETF and is trying to get a spot Ethereum ETF approved, so Wood’s opinion may be subjective.
That said, Wood adamantly believes the expansion of Ethereum’s developer base and its potential to “displace many traditional financial services” and “take share from existing financial intermediaries” will drive its price toward her sky-high target by 2032. I personally think Ethereum could come up far short of that lofty price in 8 years, but it could certainly stabilize and head higher in the long run if the Ethereum Foundation keeps upgrading its network.
Whether you’re a skeptic or a believer, Ethereum’s future is one to watch closely. This not-so-little cryptocurrency is going places, and Ethereum looks like a no-brainer buy in the current market lull.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anders Bylund has positions in Alphabet, Bitcoin, and Ethereum. The Motley Fool has positions in and recommends Alphabet, Apple, Bitcoin, and Ethereum. The Motley Fool recommends Standard Chartered Plc. The Motley Fool has a disclosure policy.
