Ethereum Prices Are a Runaway Train, So Grab Your Ticket
Cryptocurrency is a hot topic everywhere. It elicits passionate discussions from both sides of the aisle. Today we will discuss the opportunity that Ethereum (CCC:ETH-USD) has as a successful cryptocurrency.
A concept image of mining an Ethereum (ETH) token.
There are extremes lovers of crypto and even more haters.
And then there’s a giant mass of people who don’t want to even try and understand it. The concept is too foreign still. They are be apathetic about it, but therein lies the potential upside in value. They constitute an ocean of new buyers eventually.
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Almost everybody on the planet recognizes gold is because it was already there when they were born. For whatever reason, the whole world now accepts that gold is a thing to covet.
I would have loved to see the first gold transaction go down. One person trying to convince another that this yellowish inert rock is valuable. Now, most of us understand that it is rare, therefore it has high value.
Why ETH Has Value
Ethereum (ETH) Chart Showing Its Catch-up Speed to BTC and GLD
Source: Charts by YahooFinance
When people want something and there’s not enough of it to go around, its value explodes. The Bitcoin (CCC:BTC-USD) and ETH concepts are exactly the same. It doesn’t matter how they work or what they do – if anything. All we need to know is that they exist and millions love them. Therefore, they are expensive, really expensive. ETH is now worth twice as much as gold.
Bitcoin is the best performing asset by far for over a decade. Nothing even comes close, yet some still call it fake. If they don’t believe in Bitcoin, they definitely won’t believe in ETH. Experts argued that Bitcoin needed to catch up to the market cap of gold. That was a big part of the bullish argument. While it is still far, it is closing in fast. I want to apply that logic to ETH catching up to BTC.
I made this argument in early March and that trade served us well. ETH rallied 200% from low to high. But this is not the end of the story because these are volatile assets. The opportunity then was clear as day to me and the logic has staying power. This is not a one-and-done scenario. Many wrote off BTC after its first crash from $19,000. It has since silenced most of the critics. The ones still squawking are being too rigid for their own good.
We Absolutely Need Crypto in Our Future
The 2020 pandemic and ensuing lockdowns were proof that we need crypto. The world has to evolve with how it stores and transacts wealth. In addition, these long-term loose monetary rules from central banks destroyed cash. Diverting some to crypto is a way of seeking shelter from QE infinity. The Fed actions are contributing to the grab for e-coins.
This fact could be the cause for the next crash in ETH. Yes, there will be many of them and they will be buying opportunities. Investing in crypto is an ongoing process. This is not the case of waiting for a perfect opportunity because it might never come.
This week we finally saw some inflation in the CPI reports. This may force the Fed to reconsider its QE levels sooner than 2023. If so, it may relieve some buying pressure off crypto.
An Investment Vehicle
In conclusion, I don’t really care what ETH does, or how I can use it as a coin. I want it as an investment vehicle, and I only need to know that it is riding the Bitcoin coattails. Just like it’s big brother, I expect extreme volatility along the way. Therefore, I should invest in small tranches and over time.
Trying to time it is difficult even for people like me who can read charts. Most retail investors lack the skills necessary to play that game.
Recently, prices soared to $4,400 then quickly faded in just a few hours. A 20% drop sounds like a major crash but this only took it back to levels of three days ago. ETH could fall to $2,800, which is an additional 25% drop and not change anything. Just last month it was under $2,000, so clearly this one moves fast and either direction.
The bulls are in charge and the critics are on the defense.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.
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Should You (or Anyone) Buy Ethereum?
Bitcoin’s younger sibling is giving it a run for its money.
Ethereum is a digital currency that claims to be “the world’s programmable blockchain.” It is more nimble than Bitcoin, and chances are you won’t move far into the world of cryptocurrencies before you come across it.
But what does it do? And should you buy it? Read on to find out.
What is Ethereum?
Ethereum, the world’s second-biggest cryptocurrency by market capitalization, is like Bitcoin’s agile little sibling. It uses less energy and has faster transactions and more business applications.
Many digital currencies run on Ethereum’s platform, which launched in 2015. A new, improved, version called “Eth 2” is being rolled out in stages. It will support more transactions per second, consume less energy, and have enhanced security.
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One big difference between Ethereum and Bitcoin is that its blockchain ledger has smart contract capabilities. Smart contracts are self-executing pieces of code that allow an action to be performed when certain conditions are met.
For example, a smart contract in a digital book might set out what royalties should be paid when the book is sold. Or it might mean an insurer automatically pays out in specific situations, without any need for the client to file a claim. Payments could also be set up to transfer automatically as goods move along stages in a supply chain.
Should you buy it?
Like every investment – but especially crypto investments – there are risks involved with buying Ethereum.
For one, its price is volatile. You might see dramatic gains, but you might also see heavy falls. Also, since cryptocurrencies are a new type of investment, it’s difficult to judge which coins will perform well in the long term.
I put a small amount of money into crypto each month. But before I started, I first built up my emergency fund. I also made sure my new crypto investing didn’t come at the cost of my retirement contributions.
These moves ensure I’m only investing money I can reasonably afford to lose. That way, if the price of cryptos collapses tomorrow, I can wait for it to rise again. And if it doesn’t, I can stomach the losses.
Where you choose to invest should depend on your own priorities and strategy, but here are the reasons Ethereum could be interesting.
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- Many things run on Ethereum
Ethereum underpins a lot of the exciting applications of blockchain technology. It’s designed to be used to create new coins and run smart contracts. Plus, right now, you need to own Ethereum if you want to do other things – such as trade on some platforms or buy NFTs. If the crypto world continues to grow, so should Ethereum.
- Eth 2 will be more environmentally friendly
One concern I have about crypto is the environmental cost. To validate and confirm transactions, a number of cryptocurrencies use a proof-of-work (PoW) model, which uses a lot of energy.
Right now, Bitcoin uses about 130 terawatt hours (TWh) of energy each year, which is about the same amount of energy as countries like Ukraine or Argentina. Ethereum uses about a fifth of that amount, but it’s still as much as a small country like Ecuador.
Eth 2 will move from the carbon-costly PoW model to the more energy-efficient proof-of-stake (PoS) model. I won’t go into the technical details here, but estimates suggest the new mining model could cut its energy consumption by 99%.
Eth 2 will also be easier to scale and more secure, which is a bonus.
- I can stake my Ethereum
One way to earn interest on your crypto is through staking.
Staking involves tying up your coins for a set amount of time so that they can be used to mine more coins. One challenge is that there are limited staking windows. Once they are full, you have to wait for another window.
I don’t have that problem with Ethereum. Right now, many top cryptocurrency exchanges will let you stake until the Eth 2 limits are reached. In doing so, you’ll also be part of the Eth 2 development.
The downside? Your Ethereum will be tied up for an undefined amount of time, which could be as long as two years. Since I plan to hold my Ethereum long term, I’m comfortable with this – especially as I’m earning about 8% interest on my staked coins.
What are the risks?
We’ve already touched on the general risks of cryptocurrencies. There are also some Ethereum-specific risks to be aware of.
First, Ethereum is not the only cryptocurrency to offer smart contracts. Currently, several coins are operating in this market. They include:
And if these coins can do it better, there’s a chance they could knock Ethereum off the top spot.
There’s also the ever-present danger of hacking. Not only could the exchange or hot wallet where you store your currencies be hacked, but so could the Ethereum network itself.
That’s why it’s better to be safe than sorry. As with any investment, don’t just take my advice – or the advice of anyone on social media. Do your research and try to understand what the cryptocurrency you’re interested in actually does, and what its long-term potential is.
Hive Blockchain: Investors Have Ignored Ethereum’s Recent Explosive Move Higher
Ethereum, the second largest cryptocurrency, has dramatically outperformed Bitcoin thus far in 2021, particularly since the end of the first quarter. More specifically, Ethereum has rocketed 433% since its 2020 close and 105% since March 31, 2021. By comparison, Bitcoin has increased 74% and decreased 14% over same respective periods.
Relative performance of Ethereum versus Bitcoin. A rising graph indicates Ethereum is outperforming Bitcoin (and vice versa).
HIVE Blockchain Technologies Ltd. (TSXV: HIVE) has perhaps the greatest exposure to Ethereum of all U.S. and Canadian publicly listed cryptocurrency miners (see below). However, stock market investors have ignored HIVE’s close linkage to the rapidly appreciating Ethereum digital currency over the last few months. HIVE shares have declined around 52% since early to mid-February, the time of the recent peak of cryptocurrency mining stocks, and 29% since just the end of the first quarter of 2021.
HIVE Blockchain’s share price performance over the last several months
HIVE’s Close Linkage to Ethereum
Since year-end 2020, HIVE has retained all the Ethereum and Bitcoin digital assets it has mined. As of March 31, the company held 20,030 Ethereum (ETH) with a current value of about US$69 million, and 320 Bitcoin (BTC) which are now worth about US$17.5 million. In addition, HIVE had US$36 million of cash as of that data, bringing its current mark-to-market crypto and cash holdings as of March 31, 2021 to around US$122 million, or about 9.5% of its current stock market value. (On December 31, 2020, HIVE had about US$15 million of total digital currencies and US$1 million of cash on its balance sheet.)
HIVE mines (and now retains) about 20,000 Ethereum coins per quarter at its data centers in Sweden and Iceland, so its Ethereum holdings could potentially be about US$100 million (~30,000 ETH times current price of US3,400) as of mid-May 2021.
Ethereum’s appreciation could have a significant positive effect on HIVE’s reported earnings for the quarters ending March 31, 2021 and June 30, 2021. In the quarter ended December 31, 2020, HIVE reported net income of US$17.2 million, including US$6.3 million from revaluation (appreciation) of held cryptocurrencies during that period. Given HIVE’s current strategy of holding all mined Ethereum and Bitcoin since January 1, 2021, the revaluation benefit in the March 2021 quarter could be perhaps three times that realized in the December 2020 quarter.
Improving Cash Flow
As Bitcoin and Ethereum prices increased, HIVE’s operating cash flow improved throughout the fiscal year ended March 31, 2021, reaching nearly US$13 million in the quarter ended December 31, 2020. As noted above, the company’s total cash balance, including its cryptocurrency holdings, reached US$96 million on March 31, 2021 (when the digital currencies are priced as of that date), up from US$16 million on December 31, 2020.
(in thousands of US dollars, except for shares outstanding) 3Q FY21 2Q FY21 1Q FY21 4Q FY20 3Q FY20 Operating Income $17,167 $9,327 $1,913 $2,166 $3,542 Operating Cash Flow $12,877 $5,399 $516 $1,986 ($2,404) Cash, Including Digital Currencies $15,982 $16,550 $7,770 $8,586 $9,578 Debt – Period End $6,867 $6,882 $7,250 $5,057 $3,265 Shares Outstanding (Millions) 346.6 345.7 344.4 327.1 327.0 Fiscal year 2021 ended March 31, 2021.
As with any cryptocurrency miner, HIVE Blockchain’s stock is closely tied to price movements in cryptocurrencies. If Ethereum and/or Bitcoin were to correct significantly, HIVE’s shares would likely do so as well.
HIVE Blockchain’s asset value and future earnings and cash flow are closely aligned with the performance of Ethereum, yet HIVE’s shares have seen little positive impact from Ethereum’s recent startling price movement. If investors begin to appreciate the linkage between HIVE and Ethereum, HIVE’s shares could be poised to recover.
HIVE Blockchain Technologies Ltd. last traded at C$3.51 on the TSX Venture Exchange.
Information for this briefing was found via Sedar and the companies mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.