Why ether is rising faster than bitcoin in 2021

The world’s second largest cryptocurrency ether (the token powering the Ethereum network) has almost doubled its price since the start of this year from around $750 to break above the $1,400 mark on Tuesday. This has significantly outpaced market leader bitcoin’s rise from around $29,000 to $35,000, a 20% jump. Mint spoke to cryptocurrency industry professionals to understand what’s driving the interest in Ethereum’s cryptocurrency ether (ETH).

“Normally, when the bitcoin rally matures, altcoins such as ether catch up. This is because bitcoin investors start to diversify their holdings into other cryptocurrencies,” said Nischal Shetty, CEO, WazirX, India’s largest cryptocurrency exchange. “Ripple—the third largest cryptocurrency—has seen a collapse due to a US SEC lawsuit, and hence ripple investors are moving to Ethereum. Also, the past year has seen the growth of decentralized exchanges and investors transacting through these exchanges pay transaction fees in ether,” he added.

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Rahul Pagidipati, CEO, ZebPay, a cryptocurrency exchange, pointed to a structural shift in Ethereum towards the 2.0 protocol which allows investors in ether to earn interest. The new protocol is built around the “proof of stake” principle rather than “proof of work” which can reduce transaction costs and electricity consumption. “Nearly 3 million ETH ($3.8 billion) have been locked up for long-term staking, removing them from the buyable supply. With lower supply come higher prices,” he added. The cryptocurrency has a market cap of around $150 billion.

Ether is also relatively cheaper than bitcoin in per unit terms, which creates a psychological pull factor among investors. “Owning one full bitcoin is probably a dream now for most people. But you can still buy a full ether for 1 lakh, still in reach for many. Those who remember 1 lakh bitcoin may be thinking that this opportunity won’t last for much longer,” said Pagidipati. “There is a theory that ETH price will double when it breaches its previous all-time high as it did yesterday, parallel to what happened in case of bitcoin. However, as of now, I’m cautious on future price moves,” Shetty added.

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