Ethereum
4 reasons to buy Ethereum like there is no tomorrow
The second largest cryptocurrency in the world still has strong upside potential.
Ether (ETH 0.99%), the largest cryptocurrency on the open source network Ethereum, has risen almost 70% over the past 12 months. However, it is still trading around 35% below its all-time high of $4,815, which it reached at the height of the cryptocurrency buying frenzy in November 2021.
Some optimistic investors believe that the price of Ether could rise even higher. Matthew Sigel and Patrick Bush of VanEck expect its price to reach $11,800 by 2030, while Cathie Wood of Ark Invest believes it could be. worth $166,000 by 2032. Investors should take these estimates with a grain of salt, but I think Ether could still go much higher for four simple reasons.
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1. Interest rates stabilize
Ether, Bitcoin (BTC 2.89%), and many other cryptocurrencies were crushed in 2022 as rising interest rates pushed investors toward more conservative investments. However, the Federal Reserve recently left rates unchanged and is unlikely to raise them this year. This stability – and expectations of lower rates once inflation subsides – should prompt more investors to turn to cryptocurrencies and riskier games.
2. Its supply is decreasing
In August 2021, the Ethereum network implemented two major changes with its “London” upgrade. First, it changed the calculation of transaction fees, also known asgas fees” – from a manual auction system instead of an automated system. This change simplified and streamlined the process by setting prices based on network congestion.
Second, it began “burning” – or removing from circulation – the base fees of every transaction on its network. This burning process ensured that only Ether could be used to pay for transactions on the Ethereum network (which consolidated its economic value) while gradually reducing its supply to stabilize its market price.
In September 2022, the Ethereum network transitioned from energy-intensive network proof of work (PoW) (used by Bitcoin) towards the most energy efficient method proof of stake (PoS). This transition, known as “The Smelter,” reduced its total mining energy consumption by approximately 99.95%.
This also made the Ethereum network deflationary – so that more ether was burned than emitted. As a result, approximately $12.7 billion worth of Ether has been burned since the London upgrade. This is equivalent to 3% of its current market capitalization of $378 billion. Although this burn rate may gradually decrease, the ongoing process should limit the crypto’s downside potential.
3. Possible ETF Approvals in the Future
The United States Securities and Exchange Commission (SEC) has approved the first spot price of Bitcoin exchange-traded funds (AND F) earlier this year. However, the SEC has been reluctant to approve the first spot ETFs for Ether because it believes that Bitcoin is the only cryptocurrency that can be considered an asset rather than a security.
The SEC believes that Bitcoin’s PoW process is more similar to the physical process of mining precious metals, such that it can be assigned a market-determined spot price, such as gold and silver. But it says the PoS process Ethereum uses makes it more like a security, subject to stricter regulations than commodities.
The SEC does not appear eager to approve the first “spot price” Ether ETFs anytime soon, but ETF issuers – including VanEck, Ark Invest and seven other companies – could file a lawsuit against the agency for speed up the process. The recent approvals of Bitcoin and Ether ETFs in Hong Kong could also force the SEC to stop dragging its feet.
4. The growth of decentralized applications
The main thing that sets Ether apart from Bitcoin is its open source network. Bitcoin’s blockchain can only be used to mine cryptocurrency, but developers can create decentralized applications, tokens, and other crypto assets on the Ethereum network.
According to Fortune Business Insights, the decentralized applications market could grow at a compound annual growth rate (CAGR) of 28% from 2023 to 2030, as more companies deploy investing, lending and decentralized cryptocurrencies that are not linked to centralized financial institutions. . This expansion could encourage more businesses and consumers to adopt Ether as a mainstream digital currency.
Investors should prepare for high volatility
Ether, like Bitcoin, is a volatile asset that could easily lose half its value before doubling again. Therefore, investors should not use the liquidity they need over the next five to ten years to purchase Ether. That said, Ether could still generate massive long-term gains for investors who can stomach all the short-term volatility.
Leo Sun has no position in any of the stocks mentioned. The Motley Fool posts and recommends Bitcoin and Ethereum. The Mad Motley has a disclosure policy.