There have been no fundamental changes in Ethereum lately, yet Ether is growing again, regaining some of the value it lost over the last few months. The only possible explanation to this sudden surge, is a spill-over effect from the buzz that cryptocurrency markets are generating. It seems that 2017 brought a lot of momentum to cryptocurrency markets and investors are happy to forget the challenges that Ethereum faces in return for quick gains.
Bitcoin is rising, so let’s invest in Ether!
The economic logic is pretty simple. If bitcoin rises despite the challenges that it faces, then what the market deems to be as its closest substitutes will rise as well. The truth is that Ethereum is not such a close substitute to the Bitcoin network. In fact, both networks offer very different services. Nevertheless Ethereum is a well-established network, second only to bitcoin in market terms. That means that for investors, Ether could be a good substitute to bitcoin.
The equivalence that the market makes in terms of the objectives that both cryptocurrencies fulfill, is fundamentally flawed. This means that seeing Ether as a close enough substitute to bitcoin, may work in the short term. In the long term, each network has its own distinct technical challenges to deal with, which means that growth can quickly fall out of sync. This is a risk that investors have to take into account.
Quick Returns on Ether
There is no way of knowing how long Ether will grow in tandem with bitcoin. If history is any indication, it could be even a matter of weeks or perhaps even days until both cryptocurrencies fall out of sync. Just about 8 days ago, Ether was trending downwards while bitcoin was heading towards that psychological $1,000 US Dollar barrier, looking to crown months of positive trends with a headline grabbing story. Therefore it is possible that Ether will only deliver returns for a short period until the markets realize that Ethereum still has issues to work through. Returns on Ether might evaporate as quickly as they came.
The Bitcoin Spill-Over is Powerful
Despite the caveat behind the sudden surge in cryptocurrency markets, it is worth noting the power that bitcoin wields. There is no other reason for the flood of positive sentiment in cryptocurrency markets than the bitcoin story. Bitcoin gains pulled Ether back up over the $11 US Dollar line in a matter of days, despite the challenges that Ethereum still faces. That is a very important piece of information for any cryptocurrency holder to keep in mind.