Bitcoin (BTC +2.43%) has stolen the cryptocurrency spotlight. Its price has soared 125% over the past year due in large part to enthusiasm surrounding spot Bitcoin exchange-traded funds (ETFs). However, Ethereum (ETH +4.25%) returned about 80% over the same period, and at least one Wall Street analyst sees bigger gains on the horizon.
Geoff Kendrick, head of digital assets research at Standard Chartered Bank, believes smart contract technology and spot Ethereum ETFs (if approved) could send the cryptocurrency to $14,000 by 2025. That implies about 310% upside from its current price of $3,400, an enticing figure given the short timeline.
Is Ethereum worth buying?
CRYPTO: ETH
Key Data Points
How smart contract technology could increase demand for Ethereum
The Ethereum blockchain is programmable, meaning that developers can build self-executing programs called smart contracts on the platform. That technology is the foundation 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 elaborate, tokenization is the process whereby 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 because details are automatically and immutably recorded on the blockchain when tokens are transacted. Tokenization could also improve asset liquidity by enabling fractional ownership of assets like real estate, artwork, and other collectibles.
More broadly, DeFi platforms could expand access to financial services and reduce the underlying costs by allowing users to borrow, invest, and earn interest on money without intermediaries like banks. That would be particularly valuable in underbanked regions of the world.
Ethereum is the blockchain best positioned to benefit if and when smart contract technology sees greater adoption. I say that because users clearly have a preference for Ethereum. It accounts for 56% of the funds held in DeFi applications, meaning it holds more market share than all the other blockchains combined, according to DeFi Llama. Consequently, demand for the cryptocurrency could soar if DeFi goes mainstream, simply because users must pay transaction fees to interact with products on the blockchain.
How spot ETFs could increase demand for Ethereum
Spot Ethereum ETFs are investment products that (if approved) would provide direct exposure to Ethereum while eliminating the hassle of cryptocurrency exchanges and blockchain wallets. Those funds would greatly reduce friction for individual and institutional investors, which could boost demand for the cryptocurrency and send its price higher.
Indeed, recently approved spot Bitcoin ETFs illustrate how much demand such investment products could unlock. Specifically, the spot Bitcoin ETFs issued by BlackRock and Fidelity saw greater cash inflows during their first month on the market than any other ETFs launched in the past 30 years, according to Bloomberg Intelligence.
With that in mind, seven issuers have submitted applications for spot Ethereum ETFs, including BlackRock and Fidelity. The Securities and Exchange Commission (SEC) must reach a decision by May 23, but investors should not take approval for granted. In fact, James Seyffart at Bloomberg expects the SEC to deny the applications this time around. His assessment is based on the fact that regulators have not engaged with potential issuers to the same degree that they did with spot Bitcoin ETF applicants before 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 probably a ways off, even in the best-case scenario.
Additionally, I doubt spot Ethereum ETFs will win regulatory approval in May. Fortune recently reported that the SEC is investigating the Ethereum Foundation, which oversees the crypto, as part of its push to classify many cryptocurrencies as securities. The outcome could shake the market in unpredictable ways, and it would be unlikely that the SEC would approve spot Ethereum ETFs while the investigation is ongoing.
For those reasons, I would avoid Ethereum right now. That does not mean the cryptocurrency will lose value. In fact, Geoff Kendrick may be spot-on with his target of $14,000. However, I see more compelling investment opportunities in Bitcoin and the stock market.
