The rise in the market cap of cryptocurrencies has reignited the usual conversations – the euphoria around cryptocurrency is either a bubble driven by market speculation or it is on its way to becoming the digital currency of the future. It is slowly achieving a critical mass and is often contended against stocks as a profitable choice. What’s leading to this? Let’s dig deeper to understand the recent buzz around cryptocurrency.
The $2 Trillion Record
The cryptocurrency market capitalization surged to record an all-time high of $2 trillion on April 5, 2021. The rise can be credited to the growing interest among retail investors and institutions, who don’t want to miss out on the opportunity. At one point, the market cap touched $2.02 trillion by afternoon. What led to this surge was Bitcoin holding on to its position at a $1 trillion market cap for one week. Bitcoin will be able to maintain its $1 trillion market cap as long as it stays above $53,000, analysts forecast. Ethereum, the second-largest cryptocurrency in terms of market cap, added to the upsurge by hitting a record high of $2,144.99 last week. Ether’s rise is riveting as it emphasises that the interest in digital assets is expanding beyond Bitcoin.
The Rise of Ethereum
The interest in Ethereum technology is at an all-time high. Its trading volumes have been growing steadily and the demand can be credited to the acceleration of Decentralized Finance. De-Fi is a concept that will disrupt traditional financial institutions by relying on blockchain and smart contracts. With mounting appreciation for Ethereum, more investments will flow in for versatile projects. For instance, iOWN Tokens are utility tokens (ERC223), which can be used to crowdfund businesses on the investment platform, iOWNX. The aim is to bridge the gap between investors and businesses seeking funds by creating an ecosystem to enable crypto investments. New entrants in the crypto space must analyze a brand for its vision and plan its investments.
The Cryptocurrency Wave
While Bitcoin rose more than 100% this year, its counterpart Ethereum has soared by nearly 190%. Both have outgained traditional asset classes and are riding on the interest of large investors and mainstream companies like Tesla Motors, Square in the space. Further acceptance of cryptocurrencies by the mainstream financial industry came when Visa announced that it will allow the use of cryptocurrency USD Coin to settle transactions on its payment network. Recently, finance majors including BNY Mellon, BlackRock Inc joined the cryptocurrency party, triggering speculations that digital currencies will become a regular part of investment portfolios. In late March, Tesla Inc boss Elon Musk had announced that customers could buy its electric cars by paying in bitcoin, taking a noteworthy step towards the use of digital currencies. Recently, online payment giant PayPal announced that users can pay in Bitcoin (BTC), Ether (ETH) and other currencies upon checkout.
Blockchain is positioned to give the real estate industry a facelift by offering increased transparency and trust through Distributed Ledger Technology (DLT). The role of cryptocurrencies in the tokenization of assets is unrivalled. It enables fractionalization of assets, allowing everyday investors to be own a small share of the business or real estate.
What is Crypto Bubble?
In economic terms, an asset is said to be in a bubble when its price escalates rapidly. This price rise is often driven by the excitement in the market and the price range it trades at exceeds the asset’s inherent value. What follows a bubble sometimes is a quick decrease in value, termed as ‘crash’ or ‘bubble burst’. Since its existence, cryptocurrency has been at the receiving end of much scepticism. There have been numerous bubble cycles in digital currencies from 2017 and it can be attributed to market frequency, liquidity and transaction volumes. This year, Bitcoin exhibited its supremacy when it touched the $1 trillion mark for the first time on January 7, 2021. It maintained its numero uno position by holding its $1 trillion market cap for one week and Ether joined in the euphoria.
The approval and acceptance cryptocurrencies have garnered over a short period of time gives it an envious position when compared to standard stocks. While critics warn that crypto is a speculative bubble waiting to burst, a counter agreement by a majority believes that crypto is paving its path as the currency of the future. Bitcoin might be soaring high but Ether is comparatively gaining in relative strength. This enthusiasm is likely to attract more buyers for Ether and huge price volatility is expected in the coming months.