Investors are switching from Bitcoin to Ethereum and sending the price to an all-time high. New tokens are created daily, many reaching millions of dollars in market cap just hours after launch.
Cryptocurrencies have become increasingly important for financial markets. They are volatile, highly influenceable and difficult to forecast.
Digital art suddenly has value. NFTs or Non-Fungible Tokens have sold for large sums – over $60 million paid for one NFT. Meme kings are suddenly influencers for the new generation. New coins are minted in a few hours, and several hours later, they have a market cap of millions of dollars (e.g., SCAM coin).
Every retail trader wants to participate in the crypto hype despite the fear that it may turn out to be a bubble. Moves like 29% in one trading day, as seen by HIVE Blockchain on the last trading day of April, are nothing compared to other crypto assets. Dogecoin, a cryptocurrency pumped up by none other than one of the richest men on earth, Elon Musk, had rallied over a hundred percentage points in a single trading day.
Ethereum Outpaces Bitcoin
Although most of these coins are comical in appearance, the market cap keeps rising. Dogecoin, for example, was built as a joke according to its founders. The joke became serious when Dogecoin’s market cap exceeded tens of billions of dollars.
Last Saturday, Elon Musk hosted the Saturday Night Live show in America. Celebrating Mother’s Day, Elon held a speech and called Dogecoin a “hustle.” The coin immediately dropped over 30% in thin liquidity, highlighting how sensitive the crypto markets are.
Ethereum reached a new all-time high yesterday. It traded above $4,000 for the first time, outpacing Bitcoin’s performance this year.
Institutional investors turned their attention to Ethereum as the Bitcoin network still consumes huge amounts of electricity. According to a study run by the Cambridge Centre for Alternative Finance, the Bitcoin network consumes 129 TWh a year, more than a country like Norway or Bangladesh.
The problem is that most of that electricity comes from fossil fuels and only small parts from renewable energy. Hence, environmental and ESG investors turned their attention to alternatives. Today it is Ethereum, but tomorrow could be a different story.
All in all, the cryptocurrency market moves so fast that the events are truly difficult to monitor. The frenzy continues, and, for regulators, the big question is when and if it poses a systemic risk to the financial system as we know it.