For some market observers, the embrace of Ethereum by exchange and wallet startup Coinbase was a long time coming.

Last month, the co-founder of one of the most heavily funded bitcoin startups, Coinbase, announced that its digital currency exchange would start trading ethers, the native cryptocurrency of the Ethereum network. The move came after the startup hosted creator Vitalik Buterin at its headquarters for a presentation on Ethereum this March.

Yet, it was the way co-founder Fred Ehrsam released the news – with a complete rebrand to one of the company’s core products accompanied by a strongly worded blog post that warned of bitcoin’s susceptibility to Ethereum, that triggered a strong response throughout the digital currency community.

Coinbase later said it accepted more than 2 million ethers in new deposits on its first day of accepting the digital currency. At the same time, critics of the move took to social media to voice frustration over what some perceived to be a betrayal of the company’s initial user base.

But according to some industry observers, the decision was ultimately a practical one, following other startups in the bitcoin space that have begun developing products around Ethereum.

A logical step

Gil Luria, head of technology research at Wedbush Securities, believes that Coinbase’s decision to enable Ethereum trades on its GDAX platform is in alignment with the company’s commitment to provide access to “whatever cryptocurrency made the most sense for its users”.

But it is Ethereum’s potential use for managing smart contracts, prediction markets and decentralized organizations that Luria thinks most distinguished it for Coinbase.

Luria told CoinDesk:

“[Coinbase] avoided me-too altcoins such as Litecoin, but [it] looks like they believe Ethereum is different. Since Ethereum has the potential to add significant functionality that may not be available on the bitcoin network, and since there is clearly robust demand for ethers, it makes sense for Coinbase to expand into ethers.”

Author Alex Tapscott argued that the reason Coinbase pursued an integration with Ethereum was because doing so offered both long- and short-term benefits.

“Volumes are skyrocketing and so too will their fees, but more importantly putting a stake in the ground here is critical as I expect Coinbase will want to participate in the [decentralized applications] that get built on top of this new blockchain,” he said.

A chink in the armor

As can be expected, prominent supporters and participants in the Ethereum project were more bullish on the move.

Speaking with CoinDesk, Ethereum co-founder Anthony Di Iorio described Coinbase’s entry into the Ethereum marketplace as a “no-brainer” based on the number and range of third-party projects being built on the platform.

Di Iorio, CEO of wallet software developer KryptoKit, said Coinbase’s acceptance of another digital currency is the latest step in what he sees as an ongoing trend.

Di Iorio said:

“The more blockchains the better, the more competition the better. I think you’re going to start seeing every company turning into a multi-currency, multi-token system.”

Meanwhile, Peter Luce, principal at blockchain consulting firm Ouroboros LLP, partially credited another Ethereum co-founder Vitalik Buterin for being “somewhat of a benevolent dictator”, and driving the network’s success in closing the gap with bitcoin.

But Luce also blamed a lack of direction in the bitcoin community that led to opportunities not only for Ethereum but Ripple, R3CEV, Hyperledger and others.

“Bitcoin has failed to emerge as a fiat currency killer not because governments have succeeded at suppressing it,” said Luce. “But because its benefits for the average citizen are, today, not nearly compelling enough to lead to mass adoption.”

Developer mindshare

But, not every market observer sees Ethereum beating out bitcoin’s first-mover advantage.

Researcher Spencer Bogart of investment bank Needham & Company called Coinbase’s decision to embrace Ethereum a smart way to diversify the company’s product offering, while still leveraging its existing digital currency exchange infrastructure.

Bogart, however, downplayed Ehrsam’s warning that Ethereum’s functionality, including a scripting language that makes it easier to build applications, was a possible threat to bitcoin’s first-mover advantage.

“It doesn’t mean Ethereum will overcome Bitcoin’s first-mover advantage and succeed in attracting a critical mass of developer mindshare,” Bogart said, adding:

“In fact, everything I’m seeing shows that bitcoin still has significantly greater developer mind-share than Ethereum.”

By the numbers

Opinions aside, markets for both digital currencies continue to attract attention.

The move by Coinbase to accept Ethereum came amid a period of heightened trade volume in both ether and bitcoins markets, the latter of which has seen accelerated price gains in recent days.

While bitcoin enjoyed a relatively strong week last week – appreciating by about 4% prior to this weekend’s price jump – the price of ether fell, tumbling roughly 14% in the seven days leading up to 27th May.

At press time, ether is trading at a price of roughly $14 on data from US-based exchange Poloniex, while the price of bitcoin is approximately $536, according to the CoinDesk Bitcoin USD Price Index.

Long-term market capitalizations highlight the trajectory of growth as well. At the time of the Ethereum crowdsale, which ended in August 2014, bitcoin’s market cap was approximately $7.6bn, according to data from CoinMarketCap.com.

While bitcoin’s market cap has largely remained the same, reaching more than $8bn today, Ethereum’s market cap has climbed to over $1bn since inception.

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