Ether (the Ethereum token) soared to $1150 in wild weekend trading before slumping back under $900 within hours. Is there more than FOMO behind the moves?
- Ether (ETH/USD) just surged over 50% to $1150 this past weekend to top levels last seen in January 2018. The record high is at $1433
- Next month the CME will launch Ethereum futures trading for the first time, adding to the potential supply of investors (and short-sellers!)
- The huge price gains in Ether eclipsed similar moves in Bitcoin that rose above $30,000 for the first time to as high as $34,000 in a huge start-of-year short-squeeze.
- Lost faith in government and central bank-issued currencies is fuelling a ‘store of value’ bid for alternatives both among retail and institutional investors
- Corporations like MicroStrategy (which owns $1 billion in BTC) are diversifying their cash holdings into cryptocurrencies
Starting the weekend around $725, the price of Ether soared over 50% to reach over $1150 and its highest since February 2018. The wild trading then continued to the downside as the number 2 cryptocurrency erased more than half of the gains before stabilising near the psychological $1000 level.
What’s behind the latest moves?
We’re highlighting FIVE key drivers for the ETH price as we enter 2021.
1. Futures contracts
The trading in CME futures for Ethereum will begin in February and the physical tokens are getting a huge bid in the lead up to this next step in mainstream investor adoption of the cryptocurrency as a regulated asset class.
In December, CME’s Tim McCourt announced:
"Based on increasing client demand and robust growth in our Bitcoin futures and options markets, we believe the addition of Ether futures will provide our clients with a valuable tool to trade and hedge this growing cryptocurrency,"
As we have repeatedly noted, more and more large institutional investors are talking up Bitcoin. This preferential language although not directed specifically at Ethereum has nonetheless benefitted the Ether price. We think it’s not far-fetched to think that if any big investor mentions Ethereum by name, Ether can make a fresh all-time high soon after.
One note of caution though, the launch of BTC futures almost exactly matched the previous all-time high and market top 3-years ago.
2. Race to all-time high
Before this weekend ETH had been languishing at half its record high value of $1433 from late 2017. The latest price momentum makes a re-test and possible breakout above the old highs more probable.
3. $30k Short squeeze
After such a huge price run-up - naturally there was a belief by short term traders that the start of the New Year (like in 2018) would bring about a top in Cryptocurrency markets. The move above $30K in Bitcoin was a catalyst for significant short selling across multiple cryptocurrency exchanges. According to figures from CoinTelegraph, on BitMEX alone, short-sellers lost $10 million trying to sell into the rapid moves over $30,000.
4. Catch-up move to Bitcoin
Ether had been underperforming Bitcoin since the summer as the number one cryptocurrency saw a flood of institutional interest. That trend of Ether under-performance relative to Bitcoin could be coming to and end, much like it did midway through 2020.
With the Bitcoin price looking stretched up at record highs, its understandable that there might be a rotation into altcoins. If 2021 is to be the ‘alt season’ that some are forecasting, then the number 2 crypto by market cap and daily trading volume (ETH) would be expected to lead the way.
5. BIG PICTURE: Lost faith in governments
We thought this tweet from Christine Lagarde was telling.
Welcome @WolfgangProissl, who today takes up his role as Director General Communications @ecb! I look forward to working together to explain how the ECB serves the 340 million citizens in the euro area by protecting the euro’s purchasing power and fostering a sustainable future.— Christine Lagarde (@Lagarde) January 4, 2021
“By protecting the euro’s purchasing power” is an interesting turn of phrase not often heard by central bankers (perhaps understandably given the charts below).
Central Bankers and governments more broadly appear to be aware that public perception of their policies has turned much less favourable since the 2008 financial crisis and that has accelerated in the 2020 coronavirus crisis.
Lost confidence (or faith) in government and government-money backed, which is backed by nothing but the ‘full faith and credit” of those same governments is fuelling demand for alternative assets. Cryptocurrencies, gold, other commodities and to a lesser extent art, land and property are all benefitting from this trend.
We’ve listed some major bullish factors that are contributing to the huge upsurge in the interest in trading Ethereum. Indeed it could be some of that extra interest in Ethereum that causes its downfall, at least over the short to medium term.
Google search data shows that the latest rally in Ether has been accompanied by wider public interest in the altcoin. Should ‘retail investor’ interest begin to accelerate back to the levels last seen in 2008, it could be a contrarian signal that the price of ETH is overvalued amid to much speculative interest.