Inflation is one of the major issues on capital markets at the moment, with prices rising sharply across the world. In the eurozone, the year-on-year inflation rate reached 4.1% in October – the biggest jump since 2008. Whether Switzerland continues to remain relatively unscathed by this phenomenon was revealed on 2 November (after we went to press). This was the day on which the Swiss Federal Office for Statistics (BfS) published the country's consumer price index for October 2021. What is clear is that gold has not, as yet, really responded to the most latest developments. Traditionally seen as offering protection against inflation, the precious metal has been treading water for months now. In contrast, cryptocurrencies are enjoying a thrilling rally. Advocates of the cyber-based currencies see this as evidence that Bitcoin and the like become more attractive the more the traditional monetary system comes under pressure.
Jack Dorsey, CEO of Twitter and Square, recently commented on this situation, predicting that price levels would increase uncontrollably over a certain period of time. "Hyperinflation is going to change everything. It's happening," said the charismatic US entrepreneur. With his fintech, Square, Dorsey is banking on Bitcoin (BTC) in different ways. Usually it is the first and best known digital currency that is quickly mentioned as soon as talk turns to the issue of cryptocurrencies. When it comes to performance, though, the number 2 is pretty much outstripping the giant. Over a twelve-month view, Ethereum, referred to as Ether or ETH for short, has become over 1000% more expensive relative to the US dollar. The BTC/USD pair can "only" post a rise of just under 360% over the same period (see chart). Ether has also made up significant ground in volume with the latest rally: according to the CoinMarketCap portal, it now has a capitalisation of over half a trillion US dollars.
Although Bitcoin can boast more than twice this total (see graph), making up some 44% of the entire crypto universe, since the start of 2020 Ether's share has climbed from 7.5% then to nearly a fifth now. One of the drivers behind the race to catch up is the special DNA of the number 2. Ether is more than just a cryptocurrency. Vitalik Buterin created the decentralised Ethereum platform, based on blockchain technology, in 2013 as a sort of refinement of Bitcoin. It was intended to serve as a way of executing business processes or backing a very wide range of applications. The means of payment for the contracts established in this virtual universe – smart contracts, in the jargon – is Ether. The programmer's idea has come off perfectly: more and more deals in decentralised finance, or DeFi, are being transacted with the help of Ether. This may take the form of a loan, for instance, that is provided through a blockchain.
At the same time, many "NFTs" are going through the platform. Standing for non-fungible token, they serve as proof of authenticity for digital objects such as images or videos. TikTok jumped on this bandwagon at the end of September, when the video clip platform announced the creation of an NFT collection on Ethereum. Against this background, it is not surprising that spectacular price targets are now being set for the cryptocurrency. At the start of September Standard Chartered took a close look at Ether. The research team of the British big bank reckons a rise towards USD 26,000 to USD 35,000 is possible. In light of the many different decentralised applications that are possible, the analysts see Ether as more a dedicated financial market than a classic cryptocurrency. Nevertheless, their study also highlights the risks, pointing out that it is precisely because of the technical complexity that the further development of the software is associated with many imponderables. Given the enormous pace of the most recent price gains alone, of course, setbacks are always possible, although a consolidation would be unlikely to have much impact on the structural gain in significance of cryptos in general and Ether in particular.
Past performance is not a reliable indicator of future performance.
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