We’ve all born witness to the mad scramble by investors, institutions and even companies to buy bitcoin over the past few months. Some might argue that bitcoin’s price, currently sitting at more than double the infamous high from December 2017, is not truly in line with the strength of demand.
In an era of uncertainty and inflation-prone sovereign currencies, everyone appears to like bitcoin. Its fixed supply, liquidity and variety of uses have time and again drawn comparisons to gold. Both assets have established themselves as a long-term store of value with plenty of intraday options. Yet, as we all know, gold has its cousins.
If bitcoin is “digital gold,” what is Ethereum’s ether?
Noelle Acheson likens the relationship between bitcoin and ether to that of gold and oil, but it makes more sense to us to compare their relationship to that of gold and silver.
Many analysts have referred to bitcoin as “digital gold” and there’s definitely a case to be made. Gold is a traditional safe-haven asset prized for its resistance to inflation. Bitcoin could be a more-portable commodity that retains the benefit of not losing value in inflationary environments.
Here’s a common perspective from Dave Sackett, CFO of ULVAC Technologies Inc:
The value of the dollar over time is getting weaker and weaker. Bitcoin flips the script on that.
Based on this case, bitcoin’s value isn’t in its utility as a currency, but rather in its use as a store of value. The same way investors in gold don’t use an American gold eagle or a bar of bullion to buy groceries, corporations don’t transact with bitcoin.
At this point, ether offers investors similar benefits to bitcoin, but with a lower per-unit price. This is more perception than reality ‑ you can buy fractional bitcoin by the satoshi (0.000000001 BTC). You can buy fractional ether as well, all the way down to the wei (0.000000000000000001 ETH). At the time of publication, a single penny would buy 172 satoshi or five and a half trillion wei.
With a lower “headline” cost per unit and more diverse industrial applications, it’s remained a stolid #2 to bitcoin. That’s why it’s easy to think of ether as “digital silver.”
How “digital silver” compares to “digital gold”
Ether’s supply has no limit – though it’s still considered a store of value, due to its modest supply growth (about 4% at time of publication; expected to decrease with time).
But that’s not really why people buy ether. As Noelle Acheson explains, Ethereum is a bet on technology:
More than that, it’s one of the more liquid, experimental technology plays accessible to investors today. It’s not just trying to build a faster rocket or streamline dentistry. It’s aiming to reinvent the way automated applications of any type are run. Its goal is to build the ultimate base layer of a global digital economy. As well-known macro analyst Jim Bianco said earlier this week, decentralized finance is “recreating the entire financial system.” Ethereum-based applications are also likely to impact markets, governance, energy, public services, perhaps even how identity is managed.
Bitcoin is also a kind of technology bet – however, its basic parameters were set at launch. Meaningful upgrades aren’t just rare, they take years to execute.
Compare that situation with Ethereum. The Ethereum 2.0 update showed that there is no shortage of big investors interested in ETH, if its price growth is indicative of events behind the scenes.
With its expansive network, ether provides an alternative investment for buyers that looks promising (especially at a stage where many feel they missed out on bitcoin’s last real dip). The Ethereum network is cheaper, newer, faster and above all, utility-oriented.
“Utility-oriented” in this context specifically refers to Ethereum’s smart-contract functionality. Ethereum is the platform of choice for building out decentralized finance (DeFi) applications. The boom in yield farming has been good for both Ethereum and ether.
As Bitcoin indeed appears to have assumed the role of gold in digital finance, it has fallen upon Ethereum to bear the brunt of both transactions and cryptocurrency innovations.
It doesn’t take much more than a brief look to see that many of the top altcoins rely heavily or even fully on Ethereum’s network to power their workings.
Ether might not be quite in bitcoin’s market cap ballpark just yet, but it’s getting there. Despite being very much different in terms of underpinnings and centralization, the number two cryptocurrency continues to soldier along.
Ethereum and ether’s advantages over bitcoin
While to the highly conservative crypto investor bitcoin might have been a safe play and ether a risky one a few years back, Ethereum-driven altcoins have now captured speculative interest as DeFi becomes the next cornerstone of crypto.
However optimistic one feels about the prospects of decentralized finance, there’s no questioning that it has arrived. CME’s launch of ETH derivatives seems to be a reference to the exchange’s bitcoin offering unveiled in 2017. In essence, it is acknowledging that the two cryptocurrencies are all but standing shoulder-to-shoulder.
Combining the positively ballooning bitcoin price along with a general supply crunch, it shouldn’t be surprising to see corporations’ financial officers turn to ETH for many of the same benefits, and perhaps some additional ones.
Ether’s rise following bitcoin’s upward path?
While not seem as staggering compared to bitcoin’s passing of the $55,000 mark, ether’s breach of the $1,900 level is just as impressive all things considered. Less than a year ago, one could purchase one ETH for $300-500 in what is looking exceedingly similar to bitcoin’s leap from four to five-digit valuations.
There have been calls for ether to make its name as “the next bitcoin,” and it’s easy to see why. With huge corporations buying thousands of BTC and forecasts for prices to reach $1 million, bitcoin has been losing some of its availability and liquidity.
The good news? The next best thing may be right around the corner.