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Price Point Bitcoin (BTC), the largest cryptocurrency, was down for a second straight day, pushing toward the lower end of the range between $34,000 and $40,000 where prices have traded for the past couple weeks.
Ether (ETH), the second-biggest cryptocurrency, retreated after surging on Tuesday to a new all-time high price of $1,439. (Our Market Moves column, below, looks at the significance of this milestone. See also the latest issue of CoinDesk's Valid Points newsletter by our colleagues Christine Kim and Will Foxley, exploring the "intrinsic value of ether.")
The price pullback is "somewhat disappointing, but also not entirely unexpected given the focus elsewhere, most notably the transition of power in the U.S.," Denis Vinokourov, head of research for the cryptocurrency prime broker Bequant.
In traditional markets, European shares rose and U.S. stock futures pointed to a higher open ahead of President-elect Joe Biden's scheduled swearing-in on Wednesday in Washington at 12 p.m. local time (17:00 UTC). Gold strengthened 0.5% to $1,848.78 an ounce.
Market Moves Just a month after bitcoin (BTC) eclipsed its old all-time high from the bull run three years ago, prices for the lesser-known but more-versatile ether (ETH) notched a new record on Tuesday: $1,439.33, based on CoinDesk pricing.
And just as bitcoin's rapid ascent has spurred a new wave of lofty price predictions, analysts and investors in digital-asset markets immediately set about speculating on what comes next for ether, the native cryptocurrency of the Ethereum blockchain.
"Ethereum will soon pass to the next level," the trader and analyst Alex Kruger tweeted Tuesday. Points to watch range from $1,500 to $2,750, he added.
The run already looks pretty impressive. Prices climbed nearly six-fold last year and have surged another 90% just in the first few weeks of 2021.  (TradingView/CoinDesk) Ether is the second-biggest cryptocurrency by market value, which is becoming increasingly significant in comparison to real-world analogues – including several big U.S. banks that sit at the hub of the traditional economy.
The price surge over the past few days has pushed the market value of all the existing ether in the world to about $160 billion. At that level, it's larger than the U.S. financial behemoths Wells Fargo ($135 billion) and Citigroup ($132 billion) as well as the 86-year-old Wall Street investment bank Morgan Stanley ($137 billion).
Bitcoin's market value is about $644 billion, for what it's worth.  Top assets by market capitalization. (Companiesmarketcap.com) The logical justification for comparing the value with banks is that the Ethereum blockchain is the primary venue for development of "decentralized finance." Known as DeFi, it's a subsector of the cryptocurrency industry where entrepreneurs are using open-source software to build semi-automated versions of lending and trading platforms atop blockchain networks. The theory is that they could someday replace or at least disrupt traditional financial firms.
The comparison isn't perfect, since Ethereum works more like a network for companies and developers to build upon rather than the companies themselves. But the exercise does point to the ecosystem's no-longer-dismissable scale.
This is key for the value of ether, since the cryptocurrency is often used as collateral within DeFi protocols as well as used to pay fees on transactions over the Ethereum blockchain.
Collateral socked into DeFi protcols has soared to almost $25 billion, from about $700 million at the start of 2020, and even Brian Brooks, who stepped down last week as acting U.S. comptroller of the currency, tweeted Tuesday that DeFi might be "scary to some today but necessary tomorrow as some banks start telling you what you can and can't do with your own money."
According to the industry tracker DappRadar, about 45% of 238 new decentralized applications in 2020 were designed to run on the Ethereum blockchain. The top 10 applications, known as Dapps, were responsible for 87% of transaction volumes on the blockchain, DappRadar wrote in a recent report.
"DeFi development has been progressing rapidly," the blockchain-analysis firm Coin Metrics wrote Tuesday. "Although institutions likely aren't wading into DeFi at this stage, there may be growing interest from traditional finance investors drawn in by the technology."
The Ethereum ecosystem also has growing similarities with traditional fixed-income markets, especially now that the blockchain is transitioning toward a "staking" system, where new rules will reward investors with juicy yields for putting in the capital needed to assure network security. There's even a growing demand for bitcoin that's tokenized to make it compatible with the Ethereum network, where the tokens can then be deposited into DeFi protocols in exchange for attractive interest rates.
And just as bitcoin has benefited from a wave of big institutional investors allocating money to the asset, a raft of headlines on ether could draw fresh interest from professional managers.
Changpeng "CZ" Zhao, CEO of Binance, the world's biggest cryptocurrency exchange, wrote this week in a quarterly report that bitcoin works like a gateway for investors getting into the digital-asset ecosystem: "People enter via bitcoin and will almost certainly eventually explore other things in the crypto space," he wrote.
The Chicago-based futures exchange CME, which helped make cryptocurrencies more accessible to traditional investors when it launched bitcoin futures trading in late 2017, announced in December that it plans to start ether futures next month.
"This will give a more extensive base of institutional investors access to ETH exposure," the Norwegian cryptocurrency analysis firm Arcane Research wrote Tuesday in a weekly note to clients.
There are risks, of course. Ether prices are even more volatile than those for the notoriously volatile bitcoin. And over the past year, as DeFi activity grew, the Ethereum network suffered from congestion and elevated transaction fees. Blockchain contenders have sprung up to challenge Ethereum, including Polkadot, Cardano and Binance Smart Chain, according to DappRadar.
Even so, Simon Peters, market analyst for the trading platform eToro, said Tuesday in emailed comments that he's impressed with the network's ability to host decentralized streaming applications, web browsers, video games, shared computing power services and digital art shops. In addition to DeFi.
"This plethora of uses has contributed to Ethereum's price rise," Peters wrote. "As more Dapps are built on the Ethereum blockchain, its utility increases."
He said it's "very feasible" that ether could hit $2,500 this year, as it "benefits from the extended cryptoasset bull run we are currently seeing."
In that sense it's just like bitcoin: A key use case for ether is speculation. - Bradley Keoun
Bitcoin Watch  Bitcoin's hourly price chart, showing "contracting triangle" pattern of trading in a narrowing range. (TradingView/CoinDesk) Investors' ongoing appetite for bitcoin wasn't enough to prevent the top cryptocurrency by market value from slipping by over $2,600 on Wednesday.
Bitcoin fell from $36,000 to $34,000 early Wednesday (coordinated universal time or UTC) and was last seen changing hands near $34,300, representing a 5% drop on the day, according to CoinDesk 20 data.
While the cryptocurrency is down, it's still within a week-long narrowing price range, as seen on the hourly price chart.
A move below the lower end of the triangle would expose support at $30,000. The odds, however, appear stacked against a notable price drop, as bitcoin investors remain undeterred by the bull market's pause and continue to boost their holdings. The number of addresses holding at least 1,000 BTC has risen from 2,407 to a new all-time high of 2,438 in the past seven days, according to the data provider Glassnode.
Meanwhile, the number of bitcoins locked up in accumulation addresses has gone up by 30,000 to 2,739,166 BTC in the past week. Accumulation addresses are those that have at least two incoming "non-dust" transfers and have never spent funds. Dust refers to insignificantly tiny amounts of the digital asset.
Lastly, Grayscale Bitcoin Trust (GBTC), the biggest publicly traded crypto investment trust, purchased a total of 16,244 BTC ($607 million) on Monday, sucking out significantly more supply from the market than miners had added.
It remains to be seen if persistent buying from large investors translates into a quick recovery.
Token Watch
What's Hot
 The timing of bitcoin returns appears to have shifted toward North American trading hours (green line) from Asia (black line) over the past year. (NYDIG)
Analogs The latest on the economy and traditional finance
 Chart showing Federal Reserve's balance sheet during Janet Yellen's term as chair (Federal Reserve Bank of St. Louis/Quantum Economics)
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