Bitcoin (CRYPTO: BTC) stole the cryptocurrency limelight. Its price has jumped 125% in the past year, largely due to the enthusiasm surrounding spot bitcoin exchange-traded funds (ETFs). However, Ethereum (CRYPTO: ETH) has returned about 80% over the same period, and at least one Wall Street analyst sees bigger gains on the horizon.
Jeff Kendrick, head of digital asset research at Standard Chartered Bank, believes that smart contract technology and spot Ethereum ETFs (if approved) could send the cryptocurrency to $14,000 by 2025. This suggests around 310% growth from its current price of $3,400, a tempting number given the short term.
Is Ethereum Worth Buying?
How smart contract technology can increase demand for Ethereum
The Ethereum blockchain is programmable, meaning developers can create self-executing programs called smart contracts on the platform. This technology is at the heart of tokenization and other decentralized finance (DeFi) applications, and the many utilities of smart contracts could increase demand for Ethereum in the coming years.
To clarify, tokenization is the process by which ownership rights to digital and physical assets are represented as tokens on a blockchain, which itself serves as a digital ledger. Benefits include improved audit transparency, as details are automatically and immutably recorded on the blockchain when a token transaction takes place. Tokenization can also improve asset liquidity by allowing fractional ownership of assets such as real estate, artwork, and other collectibles.
More broadly, DeFi platforms could expand access to financial services and reduce underlying costs by allowing users to borrow, invest and earn interest on money without intermediaries such as banks. This would be particularly valuable in underbanked regions of the world.
Ethereum is the blockchain best positioned to benefit if and when smart contract technology gains greater adoption. I say that because users clearly have a preference for Ethereum. It accounts for 56% of funds held in DeFi applications, meaning it holds more market share than all other blockchains combined, according to the DeFi Llama. Therefore, demand for the cryptocurrency could soar if DeFi becomes mainstream, simply because users have to pay transaction fees to interact with products on the blockchain.
How Spot ETFs Can Increase Demand for Ethereum
Spot Ethereum ETFs are investment products that (if approved) will provide direct exposure to Ethereum while eliminating the hassles of cryptocurrency exchanges and blockchain wallets. These funds would greatly reduce the strain on individual and institutional investors, which could increase demand for the cryptocurrency and increase its price.
Indeed, the recently approved spot bitcoin ETFs illustrate just how much demand such investment products can unlock. Specifically, spot bitcoin ETFs issued by Black stone and Fidelity saw larger cash flows in their first month on the market than any other ETF launched in the past 30 years, according to Bloomberg Intelligence.
With that in mind, seven issuers have filed for spot Ethereum ETFs, including BlackRock and Fidelity. The Securities and Exchange Commission (SEC) has until May 23 to make a decision, but investors shouldn’t take the approval for granted. In fact, Bloomberg’s James Seyfarth expects the SEC to reject the filings this time around. His assessment is based on the fact that regulators have not engaged with potential issuers to the same extent as they have with spot bitcoin ETF applicants prior to approval.
Investors should think twice before buying Ethereum
Smart contract technology is intriguing, and the potential benefits of tokenization and other DeFi use cases are undeniable. However, widespread adoption of Ethereum-based smart contracts is likely a long way off, even in the best-case scenario.
Also, I doubt spot Ethereum ETFs will get regulatory approval in May. Fortune recently reported that the SEC is investigating crypto watchdog Ethereum Foundation as part of its push to classify many cryptocurrencies as securities. The outcome could shake the market in unpredictable ways, and the SEC is unlikely to approve a spot Ethereum ETF while the investigation is ongoing.
For these reasons, I would avoid Ethereum right now. This does not mean that the cryptocurrency will lose value. In fact, Jeff Kendrick may be spot on with his $14,000 target. However, I see more compelling investment opportunities in Bitcoin and the stock market.
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Trevor Jennewine has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Bitcoin and Ethereum. The Motley Fool has a disclosure policy.
1 Popular cryptocurrency could jump 310% by 2025, according to Wall Street analyst – No, it’s not Bitcoin, originally published by The Motley Fool