Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Why Ethereum’s Coin Price may never Match Bitcoin’s

Investors and speculators who are waiting for Ethereum’s (ETH) Coin Price to match that of Bitcoin might be sadly disappointed. Ether’s very nature might prevent it from ever catching up to Bitcoin in unit price.

Like a number of cryptocurrencies; including NEO, Ethereum lacks a Maximum Supply. A Maximum Supply is an artificial limit on the amount of Ether that can ever be produced. This means that it would be possible to mine unlimited amounts of Ether and create a Circulating Supply of one trillion ETH or higher.

It is also why there was a Circulating Supply of 96.339 million ETH on December 14, 2017, while Bitcoin had a Circulating Supply of just 16.741 million on the same day. The Maximum Supply of Bitcoin is 21 million, that means only 21 million BTC can ever be created.

As you can see there are nearly four times more Ethereum coins in the world than there are Bitcoins. Among other things we can safely assume that around four Ether coins for every Bitcoin in existence.

That situation explains why Bitcoins are so valuable right now. There were a little more than 16.7341 million Bitcoins in circulation on December 14, 2017, but they had a Market Capitalization of $279.177 million. This created a $16,676.10 Coin Price for Bitcoin on 14 December 2017.

It also explains why Ethereum had a Coin Price of $672.03 on December 14, 2017; despite a $64.72 million Market Cap and a $3.848 million Market Volume. Bitcoin had a $13.450 million Market Volume on the same day.

Yes Ethereum is Vulnerable to Inflation

The greatest potential flaw with cryptocurrencies like Ethereum is that they are vulnerable to inflation. If you remember Economics 101 inflation occurs when too much money gets put into circulation.

Since it is possible to mine unlimited amounts of Ethereum, that means inflation is a real possibility. The greatest inflation danger occurs from could miners that have the ability to produce unlimited amounts of Ethereum. Since mining pools make their money by selling altcoins, they have no incentive to control inflation and every incentive to encourage it.

Under these conditions, a rising Ethereum Coin Price might drive down prices in the long run. The Coin Price would go down because miners rushing to cash in on the high prices would flood the market with new Ethereum, and drive the price back down. This is likely to happen soon, because Ethereum’s Coin Price reached $672.03 on December 14, 2017.

That also means hyperinflation or the printing of unlimited amounts of money is possible with Ethereum. Hyperinflation usually occurs when some government prints lots of money to cover its bills. That is why hyperinflation often occurs in wartime, the government needs money to pay the army and buy weapons.

The only examples of Hyperinflation in American history occurred in the Revolutionary War and the Civil War. Another cause of hyperinflation is the deliberate printing of large amounts of currency by the enemy in an effort to destroy its value. The Union actually pursued that strategy and help drive hyperinflation in the Confederacy during the American Civil War.

This means that yes a $1 trillion market capitalization for Ethereum is a real possibility. If there were a trillion Ethereum coins circulating, the Coin Price would be pretty low.

Such an inference is easy to make because there was around $1.59 trillion in US currency in circulation and $1.55 trillion of that was in paper money, on November 30, 2017, according to the New York Fed. If the U.S. dollar was a cryptocurrency that means it would have a Market Capitalization of $1.59 trillion, a Market Volume of $1.55 trillion, and a Coin Price of around $1.03.

Were a currency; like Ethereum or NEO, ever to become widely used, perhaps because a government encouraged people to use it. That altcoin would presumably have numbers similar to those of the United States dollar.

Ethereum still has a Lot of Value

Despite that possibility, Ethereum still has a lot of potential value because of many features that Bitcoin lacks – such as smart contracts. A major selling point for Ethereum is the interest of big business and governments in it.

One reason I like Ethereum is its potential as a building block for all manner of next-generation financial solutions, marketplaces, software, networks, contracts, and data storage solutions. Another potential value adder to Ethereum is its compatibility with artificial intelligence (AI).

There are a number of fascinating AI-driven solutions under construction including; Adbank’s advertising network, the Numerai and Algo Marketplace Hedge Funds, and Sharpe Capital’s sentiment-driven market. All it would take is high returns from one of these to send the Ethereum Coin Price through the roof momentarily.

Even if Ethereum, never gets a high Coin Price it will still be worth something, because it may retain purchasing power. This means that Ethereum would not be a good hedge against inflation, but it is a good potential investment.

Something to remember is that if the Market Capitalization of Ethereum reaches $1 trillion, $100 million worth of Ethereum would be worth $100 million. That means it will still be possible to speculate with Ether and trade it.

Value Investments in Cryptocurrency

Those who expect Ethereum to become the next Bitcoin will be disappointed. Persons that invest in Ethereum might be pleasantly surprised if it gets widely adopted.

Currencies that share Ethereum’s characteristics such as NEO, XEM, and Waves are likely to experience similar low prices. The low prices might make Ethereum and those currencies value investments because they retain a lot of value but have a low price.

Disclosure: your friendly neighborhood blogger owns a small amount of Ethereum.