The digital asset industry has seen tremendous growth over the last several years. Moreover, as it has bounced back from a year-long crypto winter in 2022, many of these assets are once again being eyed by investors. So, let’s delve into one of the most popular networks on the market and discuss whether Ethereum is a good investment.
Within the landscape of cryptocurrencies, few names have been as revered as Ethereum. Subsequently, the blockchain network has become one of the most popular options available, being the number one option for developers across the industry.
However, despite its popularity and prominence, there is still an inherent risk. Specifically, no asset investment is perfectly safe or guaranteed to provide profit to the investor. That being said, let’s delve into the network, its native token, and whether or not an investment in it would be a good idea to buy Ethereum.
What is Ethereum?
Ethereum is a blockchain network that has become immensely popular since its arrival. Crested in 2013 by notable programmer Vitalik Buterin, the network and its native token, Ether (ETH), are the second-largest cryptocurrency by market cap on the planet. Currently, it is only second to the original crypto, Bitcoin (BTC), creating a continuous connection between both assets.
The network was originally designed as a way for developers to build their decentralized applications. Although that already existed within blockchain technology, the conceptual idea behind the creation of Ethereum was to create unity, which would then increase adoption.
The development of the blockchain network has continued since it first arrived with Ethereum 1.0 and has only continued to grow. Moreover, it has observed a host of changes and evolutions that have driven it to its current status as the second-largest digital asset network on the planet.
How Does Ethereum Work?
Understanding whether or not you should invest in Ethereum should come after understanding how it works. Like other networks, the Ethereum blockchain exists on thousands of different computers. Moreover, these entities participate not as one singular server but as different nodes.
This aspect creates the decentralization that Ethereum has benefited from. Additionally, Ethereum is a decentralized program that runs the Ethereum Virtual Machine (EVM). Now, if you have some experience with ETH, then that will be familiar to you,
Alternatively, if you have not, it’s important to know that EVM is essentially the computation engine that runs the entire blockchain. It will manage the state of the network and execute smart contracts.
Ether (ETH) is the utility token of the blockchain network, which is where it gets its value. Its supply is infinite, and it is used to pay gas fees on the platform as well as serve as staking rewards following the network’s transition from a proof-of-work (PoW) to a proof-of-stake (PoS) consensus mechanism.
Now, it’s difficult to go any further discussing Ethereum without discussing the Merge. Having long been referred to as one of the most influential events in the history of the industry, the Merge is the event in which Ethereum transitioned from a PoW to a PoS system and had an immediate effect on the blockchain and the industry.
The move altered the way that transactions were verified on the blockchain. Specifically, instead of using miners and robust amounts of computing power, validators now stake ETh on the network. Moreover, the move created a reduction in Ethereum’s overall energy consumption of more than 99%.
The move was a positive one for the blockchain’s sustainability capabilities and tokenomics as a whole. Subsequently, it should have a positive impact on the overall inflation issue that had been present on the platform. Moreover, despite some concerns being raised about the move, it has been overall positive for the network so far.
It is still developing, but many have observed the potential for long-term advantages to the move. Moreover, it was another example of Ethereum being at the forefront of the technology. increasing its status through its willingness to make a move like this.
Now, while it’s important to discuss Ethereum as an investment, let’s also discuss some of its greatest competitors. After all, an asset is valuable in the context of its specific class. However, in the case of Ethereum, there is only one true competitor that must be considered.
There is little argument to be made in favor of the fact that both Bitcoin (BTC) and Ethereum are standing tall as the two most prominent networks in the industry. Moreover, their differences are what makes them fairly secure in their space
Bitcoin is more monetary-based and focuses on itself as a wealth-acquiring instrument for investors. Currently, Ethereum is more revered for its utility and for how it continues to grow and evolve the industry itself.
There is truly no competitor for Bitcoin. It will forever hold the distinction of being the first cryptocurrency. Subsequently, it will always maintain its status among wealth-seeking investors. Conversely, Ethereum does face consistent competition.
In the world of utility, there is no denying that protocols and networks are being born by the day that could threaten Ethereum’s status. However, there is a lot of faith placed in the stature that Ethereum has also gained. Specifically, the asset has maintained a go-to protocol for developers. The growth of the platform and its popularity among builders make it highly unlikely that a network boasting such utility could surpass the strides that it has already made.
Although we have already discussed the positives of the protocol and its competitors, some Ethereum shortcomings could be a negative for any investment. Specifically, transaction fees on the network can be incredibly high. This negatively impacts engagement and relies on technology to improve to lessen those transaction fees.
Additionally, there is a volatility to cryptocurrency that doesn’t exist in many other asset classes. Specifically, the rapid ascent and descent of its price can occur in cryptocurrency with very little expectation. Now, this is not as large an issue with an established asset like Ethereum, but it remains a point of concern in the industry as a whole.
Finally, anything in the digital asset industry will come with regulatory risks. Specifically in the United States, the regulation of cryptocurrencies is tremendously disjointed. Subsequently, the industry will always face unexpected developments.
There is no telling what will come from the regulatory concern, but it remains an issue affecting the market. Thus, when considering the positive or negative factors of investment in any digital asset, that becomes a vital concern. Until clear and enforceable regulatory action takes place, there will always be uncertainty for investors.
Is Ethereum a Good Investment?
Now, let’s delve into the real question of why Ethereum (ETH) is a good investment. Well, the answer is truly dependent on your preferences. In the short term or long term, the Ethereum network seems a safe investment in the crypto space as any.
The digital asset is currently down around 62% from its all-time high of $4,891 in 2021. Currently, the asset is trading around the $1,800 mark, which is still a positive signal. Specifically, note that the asset is up 49% over the last six months.
The price of the asset is likely affected by macroeconomic factors. The 2022 crypto winter had spared no asset, and Federal Reserve interest rate hikes had been a constant economic concern for much of the year.
However, the asset has undeniably seen an increase recently that has edged it toward the $2,000 mark. Thus, 2023 has been observed as an undeniable positive for the asset. Alternatively, it has also seen its average volatility figures double since the start of April. Specifically, it has risen from 1.8 to around 5.44 since the start of the year.
This shows that, although the price is showing a positive trend, it is also at its most volatile. Still, with all of its recent positive developments taking place in the ecosystem, it is poised for continued gains.
The asset is not expected to return to its all-time high this year, with activity on the blockchain signaling a massive uptick precluding such an event. However, it is still expected to continue on this uptrend for quite a few years.
Current price predictions for the asset have it observing a price of between $37,00 and $4,600 by the year 2025. Subsequently, the year 2030 is signaling a prediction of around $9,300 to $14,000 to end the year. Thus, it is fairly safe to point to Ethereum as a good investment, and a fairly confident one within the ever-changing and evolving digital asset industry