7 Reasons Ethereum is Hitting New Highs in 2021

By Christopher O'Neal, CPA, MBA

 Ethereum has gone from strength to strength over the past year. After a slump in cryptocurrency prices spanning several years, Ethereum has followed Bitcoin in surging past its previous all-time highs. Ethereum has also made gains against Bitcoin's dominance of the cryptocurrency marketplace.

 Ethereum's positive price movements have reflected lots of positive press coverage for new developments concerning the second-largest cryptocurrency. From the booming trade in NFTs to a massive inflow of institutional investment, here are seven of the key factors driving Ethereum's success.

1. A Cryptocurrency Bull Market

 A rising tide raises all ships and the whole cryptocurrency market has been riding on high tides in 2021.

 Bitcoin is the original cryptocurrency and its movements are still a major predictive factor for the performance of other cryptocurrencies. Bitcoin officially marked the end of a multi-year cryptocurrency bear market in late December 2020 as it surged past its previous all-time high of $20,000.

 However, December 2020 saw Ethereum breakout against Bitcoin as well as the US Dollar. Between mid-December and April 2021, Bitcoin more than tripled in value to record a new all-time high of almost $65,000. Over the same period, Ethereum rose from $555 to more than $2,760. Currently pushing toward $4,000. This represents an almost five times increase in the US Dollar value of Ethereum. Ethereum's performance against Bitcoin has seen its relative value increase from 0.3 BTC on December 10 to more than 0.5 BTC by the end of April.

2. Ethereum's Berlin Upgrade

 Updates are rolled out on the Ethereum network at regular intervals. The latest upgrade went live on April 15, 2021. Anticipation surrounding the Berlin hard fork has likely played a huge factor in Ethereum surging from $1,552 in early March to an new all-time high above $2,760 in late April.

 The Berlin upgrade has enacted four proposals mostly aimed at reducing the gas cost of sending transactions through Ethereum. Ethereum's next major upgrade is scheduled for July 2021. The London hard fork will see some of the Ether sent to miners for verifying transactions been burned by the network instead. This will reduce the supply of Ether and potentially push Ethereum's price even higher.

3. The Boom in NFTs

 NFTs have brought a lot of hype and publicity to blockchain technology in 2021. NFTs, or non-fungible tokens, are digital assets which have their ownership recorded on the blockchain. Some of the big news stories surrounding NFTs in 2021 include the $69.3 million sale of a digital artwork by Beeple through prestigious auction house Christie's and the $370 million of NFT sales generated by the NBA Top Shot platform.

 Ethereum currently accounts for a majority of the NFT market. However, this is starting to change. NBA Top Shot creators Dapper Labs announced plans in April to move to its own Flow blockchain network. Around the same time, leading cryptocurrency exchange Binance announced plans to launch its own NFT marketplace in June. While Binance will allow trading of Ethereum-based NFTs, it will also be offering NFTs on its own Binance Smart Chain.

 These developments will likely cut into Ethereum's share of the booming NFT market in the near future. But if the market continues to grow at anything like the pace it has over the past year, Ethereum will continue to be a huge beneficiary of the NFT craze.

4. Visa Settling Payments on Ethereum

Visa is a financial giant responsible for processing 50% of all card transactions outside of China. With trillions of dollars of payments being processed on its platform every year, Visa is one of the biggest companies in the world.

 In March 2021, Visa announced plans to begin trialling the settlement of payments using the Ethereum-based US Dollar Coin. US Dollar Coin is a stable coin with a value always pegged at 1:1 with the US dollar. This could massively reduce the cost of settling large cross-border payments for Visa. The move was a huge vote of confidence in Ethereum's technology from one of the world's most important financial firms.

5. Enterprise Investment

 Visa is far from the only big player turning to Ethereum. A report from CoinShares found that $4.2 billion in institutional investment poured into Ethereum in the first quarter of 2021. During one week in March 2021, Ethereum attracted $113 million in institutional investment. This accounted for almost 50% of all that week's institutional cryptocurrency investment.

 European banking giants Santander and Societe Generale have both issued large bond sales on the Ethereum network. Societe Generale's €100 million issued on Ethereum in April 2021 immediately attracted the highest triple-A rating from bond credit rating firms Moody's and Fitch.

6. Government Interest

 A research paper published by the Bank of International Payments in January 2020 claimed that 80% of world central banks were looking into launching their own central bank digital currencies. In April 2021, the European Union's European Investment Bank announced plans to issue €100 million in bonds on the Ethereum network.

 These big moves towards central bank legitimacy show that Ethereum is increasingly becoming part of the financial mainstream.

7. The Launch of the First Ethereum ETFs

 Exchange traded funds (ETFs) are a type of security which track an asset that can be bought and sold in a similar way to stocks. ETFs are seen as an attractive alternative to directly buying and selling cryptocurrencies for institutional investors.

 Cryptocurrency ETFs have had a rocky road to acceptance. The U.S. Securities and Exchange Commission has repeatedly delayed approving ETFs based on cryptocurrencies such as Bitcoin and Ethereum.

 Canada has gotten ahead of the United States to register the first cryptocurrency ETFs. Toronto's Purpose Investments launched a Bitcoin ETF in February 2021. The ETF attracted $165 million in trading volume on launch day. By April, the ETF had accumulated more than $1 billion in assets.

 In April 2021, the Ontario Securities Commission approved three Ethereum ETFs for trading on the Toronto Stock Exchange. This may well be a harbinger of things to come in the United States.

 The Future for Ethereum

 Ethereum has enjoyed incredible success throughout the first quarter of 2021. As Ethereum-based applications gain increasing mainstream acceptance, Ethereum looks set to continue its exponential rise.

 Ethereum's growing strength against Bitcoin is a particularly positive sign for the future of the second-largest cryptocurrency. While most analysts think its highly unlikely Ethereum will ever surpass Bitcoin in market cap, most expect it to continue growing its share of the booming cryptocurrency market.