All eyes have been on Bitcoin lately – and that makes sense, with its monster rally into six-figure territory. However, flying under the radar is the fact that ether has quietly outperformed bitcoin by around 10% since early November. And unlike the old bitrocket, crypto #2 is still below its all-time high. So here are three reasons why investors are looking to ether for a crypto catch-up opportunity.
1. Ethereum still trades at a good price (compared to most crypto markets).
Ethereum is by far the largest decentralized finance (DeFi) blockchain. Data provider DeFi-Llama shows that around 57% of all total value locked (TVL) is now in Ethereum smart contracts (blue, in the chart). In other words, more than half of the value of blockchain-based trading, lending, and staking belongs to Ethereum. Additionally, DeFi is the largest area in crypto – that’s according to the Andreessen Horowitz report I talked about in October.
The report also mentions that stablecoins (tokens that track the dollar and other traditional currencies) are “the flagship application” of crypto. Well, Ethereum owns most of this market as well.
Ethereum, blue, clearly dominates the total DeFi value locked. Source: DeFiLlama.
Now the ether do have a much higher market value than its DeFI rivals like Solana (SOL) and Binance Smart Chain (BNB coin). But if we divide its market value by its TVL, the ratio is 6.1 on DeFiLlama. This is lower than Solana (12.1) and Binance Smart Chain (18.4). And to make it clear: a lower ratio here means better value.
And yet, Ether played a secondary role compared to other cryptocurrencies this year. That’s up about 80%, sure, but it’s still far behind Solana (160%) or Bitcoin (140%). And we can see this in the Ethereum Dominance chart below. It measures ether’s share of the total crypto market: when it falls, it means ether is underperforming the market as a whole.
But take a look at the chart: The metric is now in a major “bounce zone” – where old resistance from 2019 and 2021 could now turn into new support. If it was a actionI would buy it from a technical standpoint (see this article on support resistance reversals to understand why).
Ether’s share of the crypto market, measured as a percentage, over time. Source: Finimiser. Chart made in TradingView.
Keep in mind that this chart shows how ether behaves relative to other cryptocurrencies – and not against the American dollar. But if you’re looking for value and good risk/reward potential (again, compared to other cryptos), ether could be an option.
2. Ethereum offers spot ETFs.
Spot Ethereum ETFs (Exchange Traded Funds) Started Trading in the US action market in July this year. Aside from bitcoin, there is no other crypto with this badge of honor. Remember, spot ETFs buy the assets they track, one for one – so when investors buy Ethereum ETF shares, those funds are buying real ether.
BlackRock, Fidelity and other big names have seen huge success with their Bitcoin ETFs since launching in January. In fact, BlackRock iShares Bitcoin Trust ETF (ticker: IBIT; expense ratio: 0.25%) was the first ETF Never collect more than a billion dollars in a single trading day. IBIT now holds just under $50 billion in investor capital, while the others hold about $60 billion between them.
Ethereum ETFs, however, haven’t exactly followed in this wake – with total holdings of just $10 billion spread across nine funds. But things are starting to look up: On Thursday, a record $428 million was invested in spot ether ETFs in a single day, marking their ninth consecutive day of net inflows. Also note in the graph below the constant increase in flows since the beginning of November (blue arrow).
Spot Ether ETFs have attracted more interest since early November. Source: The Block.
3. BlackRock likes Ethereum.
Earlier this year, BlackRock launched a tokenized money market fund – the BlackRock USD Institutional Digital Liquidity Fund (CONSTRUCTION). This fund takes shares of traditional money market funds and “tokenizes” them, making them easier to trade and manage on the blockchain.
BlackRock didn’t just choose any blockchain for this fund: it chose Ethereum. And JPMorgan and Fidelity are also experimenting with tokenized assets on Ethereum. Sure, it might not be as fast as Solana and its other rivals, but it’s safer and more robust. As Trade-Fi merges with DeFi, we will likely see more tokenized assets and funds – and they will likely be built on Ethereum for these reasons.
And that could be good for the price of ether in the long term. Every time a tokenized transaction occurs, ether fees are involved. Thus, more transactions drive demand for the coin.
What is the opportunity here?
Look, the ether has started to rally pretty aggressively here. And with that comes more volatilityand a greater chance of a declining flush. Also keep in mind that the $4,000 level – where ether is currently trading – is technically a resistance ceiling (blue). And Risk Management 101 says you don’t want to get too involved in resistance. So if you’re considering buying, you’ll ideally want to do so on “low days” to give yourself a bit of a buffer. But if ether can break through that $4,000 ceiling (and ideally turn it into support), the next resistance would be its previous all-time high at around $4,800 (yellow).
Key resistance zones to watch for ether (ETHUSD). Chart made in TradingView.
If you take a longer term view and believe in Ethereum as much as BlackRock does, this could be the start of a more dramatic move. As usual, history is not a perfect guide – but ether taking the reins for a while would be consistent with past crypto bull markets.
