The price of Ethereum (ETH) has surged by 2400% year-to-date, from approximately $8 in the beginning of the year to beyond $200, pushing its market capitalization to around $18.5 billion. The rising price of Ethereum isn’t an exception. In fact, almost all cryptocurrencies are seeing an unprecedented rise in price.
Here are some of the reasons that explain the rise in its price.
The functionality of Ethereum is immense. Ethereum – a decentralized software platform - is like the building block that can be used for multipurpose Distributed Applications (ĐApps) and SmartContracts that run without any third party control in a secure and seamless manner.
With its increased application, there is a rise in demand by developers for ether – the crypto fuel for the Ethereum network. As corporations and businesses turn toward exploring the decentralized ledger technology, more and more work is being carried out by developers. Ether is used as a form of payment made by clients for operating on the Ethereum platform to developers. It also acts as an incentive for developers looking to develop and run applications on the network. (See also: SingularDTV Creating Entertainment On The Ethereum Blockchain)
Ethereum is being used as a core by technology giants and corporations to develop customized blockchain models. Names such as Microsoft Corporation (MSFT), JP Morgan Chase Co. (JPM), Intel Corporation (INTC), and Bank of New York Mellon Corp (BK) are associated with it. The formation of the Ethereum Enterprise Alliance in February 2017 and its subsequent expansion to 116 members recently has generated interest and excitement in the community.
Given distinct advantages such as security and energy efficiency, Ethereum will be switched from proof-of-work to a new consensus algorithm under development, called Casper based on proof-of-stake mechanism, sometime later in 2017, as per Ethereum Foundation. This means that anyone holding the core cryptocurrency (ether) can be a validator, and this may explain part of the demand for it. (Related reading, see: Ethereum To Adopt Proof-of-Stake)
Triangular arbitrage between Bitcoin (BTC), Ethereum (ETH) and Ethereum Classic (ETC) supports the current scenario.
Lastly, Initial Coin Offerings (ICO) are growing in popularity, and some of the most successful firms are raising funds via a digital token built on the Ethereum platform. In early April, Blockchain Capital, a venture capital firm investing in the cryptocurrency ecosystem, successfully raised $10 million in a record six hours for its first digital liquid venture fund called Blockchain Capital III Digital Liquid Venture Fund, LP. The Singapore-registered fund raised capital via a digital token built on the Ethereum platform. Melonport is another example.
While several reasons are cited to rationalize the phenomenal price rise, they still fall short of fully justifying the current trend. The only other explanation here is the strong positive sentiment at play on the back of the potential Ethereum holds.
Market capitalisation and Ethereum price as on May 25, 2017* 2:30 am, EST.