Ether, the second largest cryptocurrency, is outperforming bitcoin for the first time in several weeks with the ratio of ETH to BTC spiking to a monthly high Monday afternoon and holding ground midweek.
As crypto’s total market capitalization increased by more than $ 140 billion since last week, according to Coinmarketcap, bitcoin has gained almost 6% for the same period to $ 42,587. Meanwhile, the price of ether has jumped by almost 12% with the cryptocurrency breaking above $ 3,000 Tuesday morning and now trading at $ 3,017.
Ether’s recent gains underscore investors’ newfound optimism for “the merge,” its massive, long-promised software migration that would allow the blockchain to process more transactions at a hundredth of the current energy required.
“It’s the most audacious technological experiment that we will ever witness,” Noelle Acheson, head of insights with prime broker Genesis Trading, told Yahoo Finance about the merge. “The fact that they are doing this on a live network is mind blowing.”
Another contributor to Ethereum’s rise, according to Acheson, could be the series D raise of $ 450 million by Consensys, Ethereum’s largest developer organization. Consensys plans to invest a significant portion of the raise into ETH for its corporate treasuries and to build on its staked position in the new ETH 2.0 chain leading up to the merge.
After returning 400% in 2021, more than quadrupling bitcoin’s performance, ether’s value shrunk over the first half of the month with the ETH-BTC ratio eventually hitting a five-month low on March 9. But the risk-off sentiment by Ethereum investors changed course last week after Ethereum core developers pulled off an important step toward the software upgrade expected in coming months.
Outside of a few minor glitches at the outset, this first public “test merge” on the Kiln testnet has proven successful so far, which “boosted the industry’s confidence that we will see the merge this year,” Acheson said.
Ethereum is the largest blockchain for smart contracts and decentralized applications in terms of usage. But investors questioned its dominance last year as other smart contracts platforms, such as Cardano (ADA), Terra (LUNA), Solana (SOL) and Avalanche (AVAX) , gained attention for potentially better scaling capabilities for processing transactions.
The so-called merge transitions the blockchain from using proof-of-work — where crypto miners are rewarded for completing a complicated mathematical calculation to validate transactions — to proof-of-stake — which organizes transactions based on validators “staking” a quantity of cryptocurrency as collateral.
The move is widely considered to be a much needed upgrade that would allow Ethereum to process thousands more transactions per second while consuming a fraction of its current energy levels to mine ether.
But Ethereum’s transition to proof-of-stake has been pushed back a number of times over the years. It is by far the most ambitious software upgrade the blockchain has seen since launching in 2015. Last week’s successful public test gave investors more faith in the developing role Ethereum can play in the future of decentralized commerce and finance.
To migrate to proof-of-stake, the network also needs investors to secure it from attacks by staking their ETH on its new Beacon chain.
Describing this staking process as “a public good that will make Ethereum healthier and earn you more ETH in the process,” investors can receive between 4-5% annual percentage yields, but based on Ethereum core developer Justin Drake’s estimates, those yields could double at the merge, anywhere from 8-12% APYs before tapering off over the longer term.
“It’s a major step for the whole Web3 ecosystem that would lead to significant adoption” [and] high-staking yields, ”Ylann Guez, a senior trader with trading firm, Efficient Frontier, told Yahoo Finance of the merge.
Most crypto investors view bitcoin and ether as offering different value propositions, based on what drives their growth.
Created in the wake of the financial crisis, Bitcoin was promoted early on as an alternative payments network separated from the monetary order of governments. More recently, the serious holders of the cryptocurrency dub it “digital gold,” considering it a store-of- value asset.
Gil Luria, a technology strategist with DA Davidson Companies told Yahoo Finance, ether’s value — while similar in that they are both more time-tested and of higher value — is driven more so by the move to rebuild the internet in a more decentralized manner where ether can served as payment for transaction fees, among other things.
“It’s about time for a divergence,” said Luria, who went on to say the performance correlation between bitcoin and ether “should be as correlated as the historical performance of gold or the Swiss Franc to Microsoft (MSFT).”
David Hollerith covers cryptocurrency for Yahoo Finance. Follow him @dshollers..
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