After tanking 68% in 2022, Ethereum (ETH +5.60%) experienced a resurgence last year, as the digital asset soared 91% in 2023. This was on the back of renewed optimism in the crypto industry.
However, Ethereum remains 49% off its all-time high. And the current dip might be a rare opportunity.
Should investors buy this leading cryptocurrency while it's still below $2,500? Let's look at both the bull and bear cases for Ethereum, so that investors can make an informed decision.
What the bulls are saying
Ethereum was the first cryptocurrency that incorporated functionality for smart contracts. And this means that it had greater potential to introduce various use cases.
This includes decentralized applications, in verticals including gaming, social, governance, and even art. But one area that has huge potential is decentralized finance (DeFi). According to coinmarketcap.com, Ethereum has 71% of the $105 billion of total value locked in the entire cryptocurrency industry. This metric measures how much capital is staked or locked up in DeFi applications, indicating Ethereum's dominance.
In September 2022, Ethereum's network transitioned to a proof-of-stake consensus mechanism. Supporters had long waited for this upgrade, called The Merge, to make the cryptocurrency better capable of scaling up. This also reduced its energy usage by 99.95%. Furthermore, the hope is that Ethereum can process more transactions at lower costs. And this should continue to make this blockchain network a hotbed when it comes to developer activity.
Another reason why Ethereum might be on your investing radar has to do with the potential for spot exchange-traded funds (ETFs) to hit the market. The Securities and Exchange Commission approved Bitcoin spot ETFs recently, and there's optimism this could happen with Ethereum as well. So far, BlackRock and Ark Invest, among other asset managers, have filed applications. This could bring in massive amounts of institutional capital to Ethereum, which could support a higher price over time.
CRYPTO: ETH
Key Data Points
The bears have compelling arguments
The entire premise of cryptocurrencies is to take power away from central authorities and give it to the community. The goal is to create decentralized networks where individuals are in control. The issue with Ethereum, though, is that it's still controlled by a small group of people. Vitalik Buterin, co-founder of Ethereum, has an outsize influence on the direction of the crypto. Some might view this as a huge risk because he can take actions that are more favorable to himself.
Besides The Merge, Ethereum's leaders have a comprehensive roadmap that includes numerous other upgrades to the network, called the Surge, Verge, Purge, and Splurge. While this is encouraging, because it shows how well thought out Ethereum's development pipeline is, it adds tremendous technical risk. Anytime software is changed, a lot can go wrong, thus opening up Ethereum to software bugs that could make it easier for hackers to attack the network and steal people's private keys.
Investors also can't ignore regulatory concerns. SEC chair Gary Gensler has come out and said before that he views Bitcoin as a commodity, while all other cryptocurrencies are likely securities. This means Ethereum could face a more stringent regulatory framework going forward, which could discourage capital and talent from migrating to it.
Should you buy Ethereum? It depends.
Both the bull and bear cases hold a lot of weight. Investors should consider the facts and come to their own conclusion about what to do with this cryptocurrency as it relates to their portfolio composition. Everyone has a different perspective.
If you're willing to take the risk, accept the uncertainty, and understand that there will be lots of volatility, then initiating a tiny position in Ethereum while it's still below $2,500 might make sense. Of course, it's critical to maintain a long-term mindset of at least five to 10 years if you go this route.
