Ether, the cryptocurrency that runs on the Ethereum platform, rebounded from the March lows and notched up spectacular gains in 2020. After starting the year on a positive note, the spread of the COVID-19 pandemic weighed on the second-largest cryptocurrency. The exchange rate versus the US dollar declined 26% to the lows in March. The crypto trading losses were short-lived. Ether rallied in tandem with Bitcoin rising 625% in 2020.
New ETFs Buoyed ETH
ETH benefited from the liquidity in Grayscale, which offered ETF-like stocks to the American public. Unfortunately, A flood of new shares in the Grayscale Ethereum Trust created some oversupply, pushing the shares lower, diverging at one point from the underlying ETH/USD. According to Bloomberg Intelligence, the divergence was caused by a surge in the number of shares available to trade, with 116 million unleashed at the end of a lock-up period to join the 47 million that were already outstanding. Grayscale’s Ethereum trust is the exchange-traded product that invests in the second-largest cryptocurrency.
How did ETH Perform Relative to Bitcoin
While Bitcoin experienced robust returns in 2020, the movement in ETH was much more pronounced. Bitcoin rallied from its March lows, and for 2020, it notched up very robust gains rising 350% year over year. From the chart of Bitcoin as an overlay to the ETHUSD chart, you can see that the movements were similar. The returns that ETHUSD experienced during 2020 were nearly double the returns experienced by BTCUSD. The outperformance the ETH experienced over BTC followed a year in 2019 when BTC outperformed ETH by slightly more than 50%.
PayPal Gets into the Cryptocurrency Fray
The acceleration in both ETH and BTC came in October when PayPal announced that the company would begin to allow vendors and customers to make and accept payments in cryptocurrency. PayPal announced a new service enabling its customers to buy, hold and sell cryptocurrency directly from their PayPal account. The company signaled its plans to significantly increase cryptocurrency’s utility by making it available as a funding source for purchases at its 26 million merchants worldwide.
While cryptocurrency has always been seen as an investment, the mainstream adoption of cryptocurrencies has traditionally been hindered by their limited utility as an exchange instrument due to volatility, cost, and speed to transact. However, the promise of advanced technological platforms offers the possibility of mainstreaming digital currencies. PayPal has not stepped into this space, providing the mainstream adoption of cryptocurrency as a payment mechanism.
The PayPal news will have a knock-on impact where it will increase consumer understanding and adoption of cryptocurrency. The announcement said that PayPal was introducing the ability to buy, hold and sell select cryptocurrencies, initially featuring Bitcoin, Ethereum, Bitcoin Cash, and Litecoin, directly within the PayPal digital wallet.
The Bottom Line
The upshot is that ETH experienced a robust rally in 2020, which has continued into 2021. The returns it experienced were nearly double those experienced by the largest cryptocurrency, Bitcoin. The news from PayPal that it would allow customers to buy, sell and hold cryptocurrencies from its PayPal wallet appeared to be a game-changer. This news brought cryptocurrencies to the mainstream and ignited a massive rally in Ether. Looking forward, ETH likely has more room to run as more companies like Tesla make announcements that they will begin to accept cryptocurrencies as payments for goods and services.