The Rise and Fall (And Rise and Fall) of Ethereum

The big cryptocurrency story of 2017 is not Bitcoin. It’s Ethereum. The cryptocurrency, sometimes called ether and abbreviated as ETH, was first described in a paper by Bitcoin programmer Vitaly Buterin in 2013. The software was developed by a Swiss company in early 2014, and the market opened on July 22, 2014, less than three years ago.

The Rise and Fall and Rise (and Fall) of Ethereum

Source: Shutterstock

Hacking and development disputes led to a split in the blockchain in July 2016. There are now two cryptocurrencies carrying the Ethereum name — ETH and Ethereum Classic, or ETC. Don’t be confused, many are. The market cap for ETH is $25.6 billion, but just $1.67 billion for ETC.

The difference lies in the perceived superiority of Ethereum’s blockchain technology.

The Ethereum blockchain can reportedly resist attack from hackers, and handle many simultaneous transactions, unlike rival Bitcoin, where clearing of trades can be difficult, time-consuming and costly.

Another difference is that there’s something you can buy with Ethereum, startups launched through Initial Coin Offerings or ICOs. By offering stock for coins, rather than dollars, blockchain startups attracted capital that grows in value, and Ethereum speculators gained a bigger market.

While the ICOs were meant to take speculation out of the currency, removing coins from circulation by turning them back into real money, they seem to have had the opposite effect. Retail investors around the world, seeing big profits in cryptocurrency investments, have piled in to Ethereum, like day traders in the 1990s. They have overwhelmed the liquidity of some Ethereum markets, creating flash crashes, and a bubble in companies that took coins as their start-up capital, as well as the coins themselves. Some of the companies that used ICOs for start-up capital are bound to fail, like old oil wildcatters with dry holes.

The rush of institutions, including venture capitalists, into the business of Ethereum trading has only made the whole structure more volatile. The result was that the value of a single token peaked at nearly $400 in early June, plunged by one-third to $267 on July 27, rose briefly to $328 a few days later, and opened on July 6 at about $275.

Ethereum boosters predict the currency will soon be worth $1,000 per token, but the short-term technical charts remained a mess as this was written.

Vantiv’s WorldPay Buy

The desire of credit card processors to get ahead of the fintech boom is leading to lots of mergers in the sector. The latest is Vantiv Inc (NYSE:VNTV) agreeing to spend $10 billion to buy Worldpay Group, at 382 UK pence per Worldpay share. The deal is considered a “Brexit bargain,” but it’s also a defensive move by Vantiv, since WorldPay has a lot of small-business and e-commerce clients.

That price may be why Square Inc (NYSE:SQ) — a processor focused on small businesses that has never made money but did $1.7 billion in business during 2016, and $461.55 million in the March quarter — is up 80% so far this year and is now worth $9.3 billion, meaning its acquisition would likely come at an even higher price than Worldpay’s.

The biggest pure merchant processor, First Data Corp (NYSE:FDC), currently has a $16.8 billion valuation with trailing-year revenue of $11.584 billion, and a profit.

And Finally …

The former CEO of Barclays PLC (ADR) (NYSE:BCS), Anthony Jenkins, warns that banks which refuse to embrace fintech face a “Kodak moment” — a point where they suddenly become irrelevant to their customers.

Jenkins was fired by Barclays in late 2015 and has since launched his own fintech start-up, 10X Banking, which aims to eliminate paperwork in areas like opening accounts and making loans.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at or follow him on Twitter at @danablankenhorn. As of this writing, he owned no shares of companies mentioned in this story. To follow the value of cryptocurrencies, bookmark

Article printed from InvestorPlace Media,

©2022 InvestorPlace Media, LLC