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Ethereum (ETH) is an open-source distributed blockchain. It was the first one to incorporate smart contract functionality. Ethereum was developed by Vitalik Buterin and launched using a crowdsale in 2014. This is generally regarded as having been the first cryptocurrency ICO (Initial Coin Offering) even though this term wasn’t in use at the time. Since its launch, Ethereum has grown to become the second largest blockchain after Bitcoin in terms of market cap and has spawned an entire market of tokens which can be transacted on the Ethereum blockchain like ether. Although ether can be used as a currency, it is more commonly used to execute smart contracts.

Market Correction at the Beginning of 2018

2018 hasn’t been very kind to the cryptocurrency markets. We started the year with a market capitalization of $600 billion and on January 7 we hit $835 billion before starting to movie lower to a bottom of only $290 billion.

Needless to say, Ethereum price was also affected by the FUD in the markets but it suffered a relatively smaller drop compared to other cryptocurrencies. This still brought the price from its high point at $1.428 at the end of December down to $574 at the beginning of February 2018. ETH has covered some ground and is now trading at $850.

Ethereum and ICOs

Initial coin offering or for short ICO is an unregulated method of raising funds, usually for a new cryptocurrency venture. The vast majority of ICOs are built on the Ethereum platform. The number and quality of this kind of projects is an important factor that drives the Ethereum price changes. A high number of creative projects leads to a higher demand for Ethereum, which investors usually need in order to participate in ICOs. In January 2018 alone, more than $1.3 billion was collected in ICOs.

Ethereum to switch from Proof-of-Work to Proof-of-Stake

Currently, most cryptocurrencies utilize a Proof-of-Work concept. In the process of transaction validation, huge amounts of electricity are spent, since miners have to solve complex cryptographic riddles in order to mine a new block. Proof-of-stake is a promising alternative and aims to make the whole cryptocurrency industry “greener”. The idea is to make the entire process of mining virtual, thereby drastically cutting the electricity costs. Switching to a pure Proof-of-Stake method is likely to grant Ethereum advantage over other cryptocurrencies and trigger the next bull run.

Price Prediction For 2018

For those math-savvy people reading this, I used Monte-Carlo method for the Ethereum price simulation, while I used Geometric Brownian Motion (GMB) to specify the behavior of the Ethereum price. GMB is a statistical method that is widely used in the forecasting of stock prices. For the base, I used a 2-year history of Ethereum prices in order to generate 10,000 simulations.

The dark blue part of the graph stands for the 5th percentile, while the light blue part represents the 95th percentile of the closing prices on of January 1, 2019. The area in between represents 90% of potential closing prices.

The results show that Ethereum is highly volatile. The 90% confidence interval is very wide; the 5th and 95th percentile represent the closing prices of $450 and $23.500 respectively, which does not give us much insight into the price prediction.

We can narrow down the predicted range, but that consequently lowers the probability as well. The 50% confidence interval is located between $1.430 and $7.320, meaning there is a 50% chance ETH will be valued somewhere in-between on January 1, 2019.

Based on the simulation, there is a 75% chance Ethereum will be worth more than $1.430. Whether this probability is high enough for you or not is up to you to decide.