Cryptocurrency is riding a bull trend like few stocks have, even if we include the massive dip we saw a few years ago. While Bitcoin (CCC:BTC-USD) gets all the attention, let’s not forget about Ethereum (CCC:ETH-USD).
If an investor is bullish on Bitcoin, it’s hard not to be bullish on Ethereum. They don’t trade in lockstep necessarily, as each has their own period of outperformance. However, they do tend to trade together and it’s unlikely one will do incredibly well while the other does incredibly bad. From this perspective, Ethereum looks set to catch up to Bitcoin.
Ethereum is simply a smaller cryptocurrency (in terms of market value) — just like buying a different stock in the same sector. It offers investors some diversity and an alternative to Bitcoin. Plus, it has a different end market when it comes to how it’s used.
A Closer Look at Ethereum
Is there a fundamental case to be made for Ethereum and other cryptocurrencies? Absolutely and perhaps the largest catalyst is the simplest: supply and demand.
At every asset’s core is supply and demand. Increasing or decreasing either one relative to the other has a direct impact on the asset’s price. Add supply without corresponding demand and the price falls. Increasing demand with little to no increase in supply will drive prices higher.
Cryptocurrencies have more than one catalyst in play when it comes to the supply and demand observation.
The first is that supply is limited. Cryptocurrencies are designed to only allow so much supply into the market over time. Generally, producers would aim to match supply with demand, whether the latter is increasing or decreasing.
In the case of most cryptos, supply is fixed.
The other dynamic is demand. As Ethereum, Bitcoin and others gain in popularity, they’re also gaining in corporate popularity. Now, I’m not aware of any companies plunking down cash to buy Ethereum. However, some are dropping seven-figure sums on Bitcoin.
If just a small percentage of companies make Bitcoin a small percentage of their “cash and short-term investments” holdings, then cryptocurrencies could see a lot of action.
While this is admittedly a better catalyst for Bitcoin than Ethereum, the latter should piggyback off the former.
However, working in Ethereum’s favor is the NFT market, or the nonfungible token market. In essence, it’s a digital market that allows consumers to buy art, videos and all sorts of digital pieces. The transactions are made in Ethereum and as the NFT market grows, so too should demand for Ethereum.
What the Technicals Say
If there’s one thing I love about cryptocurrencies, it’s the technical manner in which they trade. Put simply, these assets trade from one key level to the next, pinballing between critical moving averages and extensions.
It’s one reason other investors enjoy them so much as well — they trade in a more pure manner. Open for trading 24 hours a days, seven days a week, also helps. Anytime investors want to add or subtract exposure, it’s just a few clicks away.
When it comes to Ethereum, it has been trading quite well on the long side. The cryptocurrency topped out at just over $2,000 in February, before quickly retreating. The decline sent it all the way down to $1,292 before a quick recovery.
Stabilizing now, what can investors expect going forward?
Ethereum is back above all of its major moving averages — a major positive for the bulls. However, it remains tantalizingly below its prior high, as it hovers near $1,800.
I love the way it held the 61.8% retracement and 10-day moving average. It shows that active bulls are there to support it and are willing to buy the dips. From here, let’s see if Ethereum can regain the $2,000 mark.
Should it clear the prior high, I want to see if it can gain enough momentum to challenge the 161.8% extension near $2,500. On the downside, a break of current support will put the 50-day moving average in play, followed by $1,400.
On the date of publication, Matt McCall held a long position in Ethereum.
The InvestorPlace Research Staff member primarily responsible for this article did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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