It’s been an exciting time for cryptocurrency investing. In these past couple of months, we witnessed the launch of Canada’s first multi-cryptocurrency ETF on the Toronto Stock Exchange, and the debut of America’s first Bitcoin ETF on the New York Stock Exchange. This was followed by an all-time high for Bitcoin when it passed the $66,900 level on October 20th, surpassing its previous all-time high record of $64,899 in mid-April.
Bitcoin isn’t the only cryptocurrency on the block that’s been gaining momentum recently. Ether, the second-largest cryptocurrency by total market value, has joined the upward-trending bitcoin in setting new all-time highs. According to CoinMarketCap, Bitcoin hit an all-time high of $68,530.34 while Ethereum hit a record of $4,837.59 on Tuesday, November 9th.
Ether, currently valued at around $575 billion, is inching closer towards the bitcoin market cap of about $1.3 trillion. According to CoinDesk, ether was up 560% year-to-date while bitcoin only gained a “mere” 135%. Coinbase stated in its latest earnings report after the closing bell last Tuesday, November 9th, 22% of its third quarter trading volume was for ether, compared to 19% for bitcoin. Some analysts expect that a “flippening” would occur within this decade where the value of bitcoin would be topped by the value of ether.
To further understand why ether has gained so much in popularity, let’s take a closer look into this cryptocurrency and how it’s being used in the marketplace.
What is Ether?
Ethereum is often thought of as another version of Bitcoin, but there are important distinctions between the two. Ethereum is a global, decentralized blockchain that runs smart contracts and powers decentralized digital apps (DApps). As an example, decentralized finance applications (DeFi) are a blockchain based form of finance that allows users to trade and borrow assets without relying on financial intermediaries such as brokerages, exchanges or banks. Ethereum powers many cryptocurrencies in the decentralized finance sector. DeFi is potentially revolutionizing the entire traditional financial system. “The rise of the DeFi sector directly correlates with the price rise of Ethereum. Currently, 112.78 Billion is locked on DeFi projects, and 70% of all these projects are on the Ethereum network. A year ago to date, the total value locked (TVL) in DeFi was 25 Billion,” according to Konstantin Boyko-Romanovsky, founder and CEO of Allnodes Inc.
Ether is the cryptocurrency associated with the Ethereum blockchain and is required to utilize applications built on that network. Launched in 2015, ether has become the medium of payment for developers who build and run DAapps.
Why Consider Investing in Ether?
Ether has often been referred to as a digital oil because the Ethereum network powers digital ‘industrial’ applications. Ether can also be thought of in a sense as a Venture Capital (VC) investment. When you own the Ether token, you are exposed to the growth of the projects being built out on the Ethereum network.
Unlike Bitcoin, the total number of Ether tokens is not capped, rather is adjusts based on demand. In August 2021, the London upgrade (EIP 1559) added fee burning with every transaction. This was an exciting development for Ether because it changed the way the Ethereum blockchain hands out new tokens. With this upgrade, some of the charge that users pay to utilize the Ethereum blockchain is burned or deleted. This offsets the new Ether that is paid to miners as the block reward. The amount of Ether can therefore reach a stable point, or potentially decrease creating a deflationary coin.
In Canada, investors can also purchase physical (or spot) backed Ether ETFs. This means the ETF invests directly in physical Ether. The benefits of purchasing Ether in an ETF structure is similar to Bitcoin in that it is simple to trade, no digital wallet required, trades on regulated exchanges, can be held in a brokerage account and are TFSA & RRSP eligible.
Although cryptocurrencies are often positively correlated, there is a large dispersion of returns between them. In 2019, Bitcoin outperformed Ether by 95%, while Ether’s return was negative. In 2020, Ether outperformed Bitcoin by over 150%. For that reason, it is important that investors diversify across cryptocurrencies.
Investing in Cryptocurrency
Deciding which cryptocurrency to own and how much to allocate can be overwhelming for many investors. The Evolve Cryptocurrencies ETF (TSX: ETC) is Canada’s first multi-cryptocurrency ETF. ETC is designed to be a one ticket solution to cryptocurrency exposure. It is market cap weighted and rebalanced monthly. It currently only holds Bitcoin (TSX: EBIT) and Ether (TSX: ETHR) but as regulators approve other crypto ETFs they can be added as well.
If you’re looking for crypto specific ETF investment options, Bitcoin ETF (TSX: EBIT) and Ether ETF (TSX: ETHR) offer a great way to access the price of Bitcoin and Ether respectively. For more information visit the fund pages here: https://evolveetfs.com/product/ebit/; https://evolveetfs.com/product/ethr/
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