The Ethereum price is up about 250% over the past four weeks thanks to a timely combination of rising institutional interest and a dire impasse among users of fellow cryptocurrency Bitcoin.
A month ago, the price of Ethereum was under $13. Now it's trading at about $45, according to the website CoinMarketCap.com.
Much of the surge in the Ethereum price has come from Bitcoin owners either bailing on Bitcoin or hedging their digital currency bet by purchasing some ether.
But not all. Ethereum has developed substantial "buzz" as a cryptocurrency with features distinct from those of Bitcoin. Over the past year, this upstart has attracted attention from such heavy hitters as Microsoft Corp. (Nasdaq: MSFT), JPMorgan Chase & Co. (NYSE: JPM), and CME Group Inc. (Nasdaq: CME).
Still, most of the vertical spike in the Ethereum price is the result of nervous capital moving from Bitcoin to Ethereum.
About half of the Ethereum trading volume is from Bitcoin/Ethereum trades, with the rest coming from Ethereum/fiat pairs. (Ethereum purchases in U.S. dollars make up about one-fifth of the trades.)
One highly publicized event that caused some of the movement occurred March 10, when the U.S. Securities and Exchange Commission (SEC) denied a rule change that would have allowed the Winklevoss Bitcoin Trust ETF to begin trading on the Bats BZX Exchange.
Anticipation that the SEC would approve the Winklevoss ETF had pushed the Bitcoin price as high as $1,327, an all-time high. The price of Bitcoin plunged about $300 in the immediate aftermath of the SEC denial.
But that's not the main reason Bitcoin capital has been moving into Ethereum in recent weeks.
A Bitcoin Crisis Is Driving Up the Ethereum Price
The argument is over how to increase the capacity of the Bitcoin network to process transactions. Right now it is close to capacity, which has at times caused transactions to be delayed. Fees are rising as well because transactions that offer higher fees get priority.
One faction wants to increase the size of Bitcoin's blocks from one megabyte to two or even eight megabytes to fit more transactions in. The other wants to use a technology called Segregated Witness to squeeze more transactions into the space available.
Without getting into all the ugly details, this has become an extremely contentious civil war.
Advocates of a variant of the Bitcoin software called Bitcoin Unlimited -- the side that wants to increase the block sizes - have gained more support over the past few months, particularly from the powerful Bitcoin miners.
That has raised the specter of what's called a "hard fork" of Bitcoin, which essentially would split Bitcoin into two incompatible variants.
That's what has so many in the Bitcoin community concerned. After the split, it would be unclear which one is the "real" Bitcoin.
The resulting confusion would play very badly in the mainstream financial media, causing the Bitcoin price of both versions to plummet.
Such a disruptive event would also open the door for another cryptocurrency to steal some of Bitcoin's thunder. And Ethereum, the No. 2 cryptocurrency behind Bitcoin, is the most logical candidate.
Fear of a Bitcoin hard fork has driven the movement of capital from Bitcoin to Ethereum. Cryptocurrency exchanges like Bitfinex, Poloniex, and Kraken trade in both, making it easy for customers to buy Ethereum with their existing Bitcoin.
And Ethereum has become the go-to choice because of the "buzz" I mentioned earlier.
Here's why Ethereum is the new darling of the cryptocurrency world...
The Ethereum Price Would Be Rising Even Without Bitcoin's Woes
Ethereum's status as the No. 2 cryptocurrency is somewhat surprising given it's one of the youngest digital currencies, having launched in July 2015.
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Ethereum jumped ahead of the others because it's a cryptocurrency with something extra. It's designed to function as a giant global computer. The Ethereum network can actually run programs. The technical term for this is "Turing complete."
It means that Ethereum can run digital applications and "smart contracts."
Imagine a sports bet programmed into Ethereum. Both parties would send their bets to the program, which it would hold in a sort of digital escrow account. The program would be designed to check the score of the game wagered upon and automatically pay off the winner.
This ability makes Ethereum better suited to the sort of blockchain-based use cases that have so enticed major financial institutions and the nascent "fintech" industry.
And it led to a major announcement on Feb. 28 that clearly influenced on the price of Ethereum...
Ethereum the Cryptocurrency of Choice for Blockchain Projects
The Enterprise Ethereum Alliance debuted at the end of last month. It's a consortium of leading banks, tech companies, and others interested in developing "enterprise-grade software capable of handling the most complex, highly demanding applications at the speed of business."
Members include banks like JPMorgan, Bank of New York Mellon Corp. (NYSE: BK), Credit Suisse Group AG (NYSE ADR: CS), and UBS Group AG (NYSE: UBS). Tech companies on board range from titans like Microsoft and Intel Corp. (Nasdaq: INTC) to blockchain startups like Tendermint and Consensys. The EEA also has some less predictable members, such as oil giant BP Plc. (NYSE: BP).
Such corporate diversity lining up behind Ethereum suggests this cryptocurrency will thrive, whatever happens to Bitcoin.
One other recent development also has contributed to the spike in the Ethereum price.
Last week venture capital firm Blockchain Capital announced it was planning to create a new $50 million venture capital fund in part by selling digital tokens to accredited investors in the United States. The tokens will be based on the Ethereum network.
The Blockchain Capital project is a real-world application of the promise of cryptocurrencies - and it's using Ethereum.
What's even more remarkable is that Ethereum had a hard fork moment of its own last year in the wake of the DAO fiasco. Two versions of Ethereum exist today as a result, but it hasn't prevented the dominant version from gaining traction in the marketplace.
In the past month, Ethereum has moved much closer to Bitcoin's level in the cryptocurrency universe. And if Ethereum follows Bitcoin's path, that 250% gain may just be a taste of what lies ahead.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.