The Ethereum (ETH -5.57%) cryptocurrency carries a total market value of $348 billion today. That's more than 18% of the total cryptocurrency market, which clocked in at $1.89 trillion at 2 p.m. ET on Monday afternoon. Will the second-largest cryptocurrency's market cap reach the $1 trillion benchmark in the next three years? Let's take a look.
How big would that move need to be?
You could consider a theoretical move from Ether's all-time high on Nov. 8, 2021, where it was worth $4,627 per token or $569 billion in total. From there, Ether could have reached $1 trillion by rising 76% higher.
But the last three months have been rough, as investors of all stripes have backed away from high-risk options such as cryptocurrencies and growth stocks. After a 40% drop, the Ethereum blockchain network's token needs to gain roughly 187% to reach a full trillion dollars from today's prices.
So we're looking at Ethereum prices nearly tripling over roughly three years. Historically speaking, that's a pretty low bar to clear. The token has gained 2,260% over the last three years, for example -- including that 40% plunge from November's peak. Viewed in a different light, Ether has gained roughly 187% in the last 13 months. Of course, the ride has not been smooth, but the kind of move required for Ether to reach $1 trillion from here has been fairly commonplace so far. And it was more than just a sectorwide rising tide that lifted all cryptocurrency boats. Ethereum achieved this near-tripling gain while larger peer Bitcoin (BTC -5.34%) only rose 24%, roughly in line with the stock market.
So why would Ethereum make that big leap?
The Ether token has several important price-boosting tailwinds at its back.
- The network is making a few technical changes that should end the blockchain system's reputation of being slow and expensive. The upgrade formerly known as Ethereum 2.0 should be completed in 2023, with the most important changes currently scheduled for the second half of 2022.
- Ethereum is the market leader in smart contract platforms, giving it a solid first-mover advantage over smaller challengers. Smart contracts are a crucial ingredient in non-fungible tokens (NTFs), decentralized finance systems (DeFi), and other so-called Web3 technologies.
- The domestic cryptocurrency market doesn't have a fully functional regulatory system yet. Lawmakers, consumers, financial professionals, and cryptocurrency backers alike are clamoring for a proper set of rules regarding taxation, trading restrictions, privacy requirements, and more. For now, your Ethereum holdings are treated as a digital version of investable assets such as stocks or real estate. Some might say that it should be seen as an alternative currency instead, with a completely different set of ownership and taxation rules. Pinning down the legal framework can only be good for Ethereum and friends, even if the actual rules turn out to be heavy-handed.
- The mass-market interest in cryptocurrencies in general and Ethereum on particular has been high and steady over the last year, judging by data from Google Trends. However, crypto prices tend to surge and swoon in tandem with rising and falling online search volumes, and Ethereum hasn't seen a spike in Google searches since May of 2021. If and when the public discourse turns its attention back to Ethereum and other crypto names, we should see another surge in Ether prices. Any of the points above could trigger that word-of-mouth effect.
I wouldn't hold my breath waiting for the legislative and regulatory processes to grind their wheels, but the other three price drives could catch fire at any moment. In particular, Ethereum's technology upgrades should take full effect no later than 2023. Some of the upside from that event has probably been priced into Ethereum's tokens already, but we have not seen the full effect yet.
So yes, I expect Ether's market cap to exceed $1 trillion by 2025, and quite possibly by a large margin. The Ethereum network has some growing up to do, and investors should be able to take advantage of that constructive process.