In bitcoin's shadow, another cryptocurrency, Ether, stages its own rally

NEW YORK: Bitcoin has gained attention in recent weeks when it reached a new recordAnother major cryptocurrency, Ether, has been enjoying its own meteoric rise.

Launched in 2015, Ether, also known as Ethereum, is by far the second largest digital currency in terms of total value, now estimated at more than $460 billion.

Along with other cryptocurrencies, including Solana and Dogecoin, it benefited from regulatory approval in the United States of a new bitcoin investment product, the exchange-traded fund (or ETF), in mid-January, said James Butterfill of the CoinShares investment company.

These ETFs allow investors to benefit from any changes in the price of cryptocurrencies without having to buy them directly and, at the same time, sell them at any time.

The launch of crypto ETFs has sparked an influx of new money, driving bitcoin to a new record on Friday of $70,085.

Bitcoin's rise has been well documented, but Ether's has been even more impressive, rising nearly 72 percent so far this year compared to Bitcoin's 61 percent rise.

This good performance is largely due to "expectations that an Ethereum ETF may be approved in the United States," according to Dessislava Aubert of the research firm Kaiko.

Several asset management companies have requested authorization from the US financial markets regulator, the Securities and Exchange Commission (SEC), to market these investment products in Ether.

The SEC must rule on the first such applications, from VanEck and Ark 21Shares, by May 23 at the latest.

"Ethereum has started to wake up, as investors anticipate a possible approval," Michael van de Poppe of MN Trading told AFP, adding that "people are moving from Bitcoin to Ethereum as a possible investment opportunity."

BIGGER THAN BITCOIN?

Beyond the ETF effect, the digital currency devised by Russian programmer Vitaly Buterin has several other cards up its sleeve.

For Simon Peters of cryptocurrency exchange eToro, Ethereum is also boosted by the prospect of "Dencun", a major upgrade to the technology underlying this digital currency, scheduled for March 13.

This important change will improve transaction processing capacity and reduce transaction costs, but it also has the potential to trigger the growth of an ecosystem with multiple applications.

"Bitcoin's primary use is as a store of value, while Ethereum has many more potential use cases," Peters told AFP.

For example, it is the chosen destination for non-fungible tokens -or NFTs-, the digital certificates of authenticity that caused so much commotion three years ago.

The two cryptocurrencies do not compete directly, according to MN Trading's van de Poppe, because Bitcoin is "hard money," while Ether "is basically an investment for the entire blockchain and smart contract ecosystem."

Ethereum has already successfully negotiated two major technical transformations in recent years, including the switch to a more energy-efficient system in September 2022.

James Butterfill said there is "growing optimism" that a "Dencun" upgrade "will go smoothly," which would bolster the currency's credibility.

He added that Ether, by the very nature of its operation, offers the "additional benefit" of the interest generated by its holders.

The mechanism for creating this currency involves owners putting up existing Ether coins as collateral in a process known as "Proof of Stake," which differs from bitcoin's energy-intensive method involving very complex calculations known as "Proof of Work." ".

Ether investors who agree to put up some or all of their holdings receive a fee of a few percent annually, in addition to any potential capital gains if the currency appreciates.

The “Proof of Stake” process adopted in September 2022 has significantly increased the amount of Ether used as collateral, notes Simon Peters, currently at 21 percent compared to just 10 percent 18 months ago.

“There is less Ethereum in circulation,” he said, adding: “If demand increases, given the shortage of supply, then the price should follow the same path.”

"I think Ethereum is going to surpass Bitcoin," said Michael van de Poppe, adding that Ethereum's total market capitalization could end up surpassing that of Bitcoin.

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