When trading ceased on 31 December 2017, speculators tallied returns that dwarfed every conventional asset class. Bitcoin absorbed most headlines after it crossed five figures, yet Ethereum outpaced it. The aggregate crypto market capitalisation rose from eighteen billion dollars on 1 January 2017 to six hundred thirteen billion dollars on 31 December 2017. Bitcoin’s share of that total fell from eighty five percent to forty three percent. Ethereum absorbed the largest portion of the displaced value.
On 1 January 2017 the spot price of one ether token equalled eight dollars and twenty-four cents. On 31 December 2017 the same token changed hands at seven hundred twenty six dollars and fifty-six cents. The gain measured eight thousand seven hundred twelve percent. A one-thousand-dollar purchase on the first trading day of the year became ninety three thousand seven hundred dollars on the last trading day.
The advance did not follow a straight line. January opened with thin liquidity and frequent three percent intraday swings. Between 10 March and 17 March the price doubled from thirty two dollars to sixty four dollars after the Enterprise Ethereum Alliance announced thirty new corporate members. A second surge began on 3 May when ether traded at ninety five dollars and ended on 12 June at three hundred ninety four dollars. The rally coincided with the first wave of initial coin offerings that accepted only ether as payment. Projects such as Bancor, Status along with TenX collected a combined seven hundred fifty million dollars in ether within six weeks.
Profit-taking after the June peak drove the price back to one hundred seventy five dollars on 16 July. A third advance started on 21 July at one hundred ninety dollars and climaxed on 12 September at four hundred fifteen dollars. The move tracked the Initial Coin Offering for EOS, which raised one hundred eighty five million dollars in ether during a five day window. A fourth advance began on 25 November at four hundred fifty dollars and peaked on 13 December at eight hundred eighty two dollars. The final push aligned with the launch of CryptoKitties, a non-fungible-token game that congested the network and highlighted the need for scaling solutions.
Each rally attracted new participants. Exchange registrations at Coinbase, Kraken in addition to Bitfinex spiked during every price surge. Google Trends data show that the search term âbuy Ethereumâ reached its highest score of one hundred on 11 June, 12 September next to 13 December. Network hash rate rose from four thousand five hundred GH/s on 1 January to eighty five thousand GH/s on 31 December. Daily transaction count increased from thirty one thousand to one million two hundred thousand. Average transaction fees climbed from two cents to three dollars and forty cents.
The price derived support from three concrete sources. Every Initial Coin Offering built on Ethereum required participants to purchase ether first. The protocol emitted fourteen thousand four hundred new ether each day through block rewards. Miners sold roughly sixty percent of the new supply to cover electricity costs, yet demand from new entrants absorbed the flow. The Metropolis upgrade activated on 16 October. The fork reduced block rewards from five ether to three ether, cut uncle rewards, added support for zk-SNARKs. Traders interpreted the change as a supply shock.
State of the Dapps listed two hundred fifty live projects on 31 December 2017. An additional five hundred fifty projects sat in concept, demo, or stealth phases. Each project required ether to pay for computation, storage along with bandwidth. Robert Binning, chief executive of the tracking site, stated: âDistributed applications create direct demand for the native token. Every user who interacts with a dapp must hold ether. Every developer who deploys a smart contract must spend ether. The aggregate effect resembles a tax on network activity that accrues to token holders.â
The Initial Coin Offering mechanism channelled capital into ether at an accelerating pace. In January 2017 projects raised twenty three million dollars through token sales. In June 2017 the monthly total reached five hundred fifty million dollars. In December 2017 the figure hit one billion two hundred million dollars. Investors sent ether to smart contracts that returned newly minted tokens. The smart contracts held the ether until project teams met vesting schedules. The locked ether reduced the free float and amplified price moves.
Arbitrage between bitcoin and ether reinforced the trend. Traders sold bitcoin at successive highs and rotated proceeds into ether. The cross rate between the two assets fell from forty seven ether per bitcoin on 1 January to ten ether per bitcoin on 31 December. The shift indicated that ether outperformed bitcoin by a factor of four point seven. Exchange data show that the ether bitcoin pair accounted for twenty percent of daily volume on Poloniex but also Bittrex, up from five percent at the start of the year.
The final weeks of 2017 displayed classic blow off characteristics. From 8 December to 17 December the price advanced from four hundred fifty dollars to eight hundred eighty two dollars. Daily volume on Coinbase exceeded one billion dollars for the first time. The Relative Strength Index printed ninety seven, a level that indicated extreme overbought conditions. On 22 December the price dropped to five hundred fifty dollars in a single session. By 31 December the market had stabilised at seven hundred twenty six dollars.
Tax considerations influenced selling pressure. United States taxpayers faced a 31 December deadline to realise gains or losses for the 2017 tax year. Exchange outflow data from Chainalysis show that forty five percent of all ether held for more than one year moved to known exchange addresses during December. The transfers preceded a wave of profit taking that pushed the price below seven hundred dollars. Order book snapshots from Bitfinex revealed that support clustered at six hundred fifty dollars and resistance formed at eight hundred dollars.
Network fundamentals improved in parallel with price appreciation. Active addresses rose from sixty seven thousand to four hundred ninety thousand. The total number of unique smart contracts deployed surpassed one million. Gas usage per block increased from three million to twenty nine million. Developers released Byzantium, the first half of the Metropolis upgrade, without a single chain split. The second half, Constantinople, was scheduled for 2018 and promised to reduce block rewards further and introduce proof-of-stake elements.
Purchasing cryptocurrencies or tokens issued through Initial Coin Offerings involves substantial risk of loss. Price volatility, regulatory changes in addition to technical failures can eliminate invested capital. The foregoing discussion is not investment advice. Each prospective participant should consult a licensed financial professional before committing funds.
