What’s next after 50% gain in the first quarter
by James · April 3, 2023
Ether delivered a strong performance in March – despite the larger and more established bitcoin stealing the show all month – and investors have good reason to be excited about the cryptocurrency heading into the second quarter. Bitcoin opened investors’ eyes to the diversity of the narrative as the price battled a banking crisis, a regulatory crackdown and persistent inflation. However, Ether, the second largest cryptocurrency by market cap, ended up 12% in March, according to Coin Metrics. It was the third consecutive positive month for the longest monthly streak since a seven-month rally ended in April 2021. Ether also posted a 52% gain for the quarter, according to Coin Metrics. ETH.CM= YTD mountain Ether (ETH) in 2023 Many crypto investors believe they are now in a bull market to start the second quarter. Bitcoin’s recent price action has certainly helped, but crypto is still bigger than bitcoin alone. Furthermore, some see technological advances on the Ethereum network as laying the foundation for the new cycle. “The reason we’re in another bull market cycle right now is because we have this huge breakthrough in blockchain technology, which is that the problem of scalability and cost goes away,” said Matt Hougan, chief investment officer at Bitwise Asset Management. “It’s being overshadowed right now for good reason — because people are so excited about bitcoin in the face of yet another banking crisis.” “That doesn’t mean we won’t have big pullbacks — we could — and it doesn’t mean it won’t be volatile,” he added. Bitcoin and ether price movements have historically tracked relatively in line on a percentage basis, but the top two crypto assets “disconnected” in March, thanks to a “flight to quality” in bitcoin following the bank closures, Wells Fargo analyst Jeff Cantwell said in a recent note. While the two cryptocurrencies remain closely correlated at present, further technological advances on Ethereum that allow for “real-world” use cases on the network will drive them further apart over time, according to Oppenheimer’s Owen Lau. Solving the ‘Blockchain Trilemma’ Throughout crypto’s history, designers haven’t solved the problem of being able to build blockchain networks that are secure, decentralized and scalable, Hougan said. “You couldn’t build a piece of software that did all three things at the same time,” he said. “It could do two things, but it couldn’t do the third. It could be scalable and decentralized but not secure. Or it could be secure and decentralized but not scalable.” Last year, however, Ethereum underwent the “merger” and became a proof-of-stake blockchain. This breakthrough accelerated the development path, allowing for major Ethereum blockchain upgrades on mainstream, Hougan added. “What it will mean is that the cost of doing a transaction on the Ethereum blockchain will drop from a couple of dollars to 10 cents to 0.002 cents, and actually drop to zero,” he said. “It’s a huge change, and it’s the result of these technological breakthroughs. It’s akin to the moment when Internet access went from dial-up to broadband.” Ultimately, a cheaper and more scalable Ethereum will enable more applications to be built on top of the network. While bitcoin is often seen as a “boring” asset that investors buy to watch price changes, ether is the token that drives network developers to build on – payments, games, non-fungible tokens and more. That’s what drove much of the bull run in 2021. “These native crypto powers become much more important as the real-world applications become much more real,” Hougan said. Still, he warned, “it’s still the case that these big macro shocks affect all these assets.” Looking Ahead: The Shanghai Upgrade Ethereum’s next major technology upgrade is scheduled for April 12 and is sure to be a key catalyst for the price of ether in the coming months, according to Lau, an analyst at Oppenheimer. “There are positives and negatives that could come from the Shanghai upgrade,” he said. On the one hand, “you’re going to see more token tokens being unlocked, so there may be some selling pressure. But in the longer term, this is another step that tells people that we can have a better and faster ecosystem in Ethereum. ” “It’s not the playoffs, we’re just marching toward the playoffs,” he added. “So there could be some volatility heading into the news.” The most notable result of the Shanghai upgrade is that it will allow investors to withdraw their stakes in ether, for the first time ever. That could trigger a period of volatility considering that around 18 million ether coins, or 15% of the total ether in circulation, are at stake, according to KeyBanc. “The upgrades represent a significant step for the Ethereum network, and while it’s hard to say what ETH flows might look like post-upgrade, more liquidity will exist all things being equal,” said KeyBanc analyst Alex Markgraff. “Greater liquidity can be a catalyst for a change in institutional participation, while also presenting commercial opportunities for bet providers.” The Shanghai upgrade follows the Ethereum merger, the September transition of the network from proof-of-work to proof-of-stake. After its completion, it will allow investor withdrawal of staked ether. Last year, ether spiked in the weeks leading up to the upgrade, posting a 70% increase in July alone. It dropped around 20% shortly after the upgrade was completed. – CNBC’s Michael Bloom and Nick Wells contributed reporting
