Should You Invest in Ethereum Right Now?

Should You Invest in Ethereum Right Now?

When it comes to cryptocurrency, Bitcoin (CRYPTO:BTC) is the big name in town. But Ethereum (CRYPTO:ETH) has had an incredible year.

Since the beginning of the year, Ethereum’s price has soared by 435%. Over the last 12 months, it’s increased by more than 1,700%. The price of Bitcoin, by comparison, has increased about 100% so far this year, and 518% over the past 12 months.

Run-ups like these can be difficult to ignore, and some experts believe Ethereum has a promising future. But is it time to buy?

What is Ethereum?

First, it’s important to distinguish the difference between Ethereum and Ether. Ether is a type of cryptocurrency, similar to Bitcoin. Ethereum is the blockchain technology behind Ether.

Ether and Bitcoin share many similarities. They’re both digital currencies that can be used to make transactions. Like Bitcoin, you can invest directly in Ether by purchasing coins. Ether is significantly more affordable than Bitcoin, however. Ether costs around $4,100 per coin, as of this writing, while Bitcoin costs around $57,400 per coin.

It’s also possible to invest in the Ethereum technology. Some of your options include:

Investing in Ether directly: By purchasing Ether coins, you’re also supporting the Ethereum technology behind the cryptocurrency.

By purchasing Ether coins, you’re also supporting the Ethereum technology behind the cryptocurrency. Investing in a managed fund: Funds like Grayscale Ethereum Trust OTC:ETHE)

Funds like Investing in certain stocks: Buying stocks that have some connection to Ethereum technology is another option. Companies like NVIDIA and AMD, for example, build computer chips that are often used during the coin mining process.

Ethereum is a widely used technology that has a variety of applications. But before you invest, it’s important to understand the advantages and disadvantages.

Considering the advantages

One of the biggest advantages of the Ethereum blockchain is its flexibility. While it’s mostly known for hosting Ether, it’s also used for nun-fungible tokens (NFTs), decentralized finance, and enterprise blockchain solutions.

In other words, it has applications outside the cryptocurrency world. Even if cryptocurrency itself doesn’t succeed over the long run, Ethereum could still be used in other ways.

In addition, one major criticism of cryptocurrency, specifically Bitcoin, is how energy-intensive it is. In fact, researchers from the University of Cambridge estimate that the Bitcoin mining process uses more electricity than the entire country of Sweden.

Ethereum, however, aims to be more environmentally friendly. Developers of the technology are currently working to shift how coins are mined to make the process more energy-efficient. This could give Ethereum an advantage over Bitcoin, especially among environmentally conscious investors.

Also, as the Ethereum network undergoes changes, some of the Ether coins could be destroyed in the process. This could actually be a good thing for investors, however, because a smaller supply of Ether could make it more valuable and drive up its price.

Understanding the risks

Despite its flexibility and wide range of applications, there are still risks involved in investing in Ethereum and Ether.

For one, you’re almost guaranteed to experience significant volatility – especially if you invest directly in Ether. Cryptocurrency is a risky investment in general because it’s highly speculative at this point. Some experts also believe we’re in a crypto bubble and that digital currencies like Bitcoin and Ether are overvalued. If that’s the case, prices could plummet when the bubble bursts.

Also, new laws and regulations could pose a threat to Ethereum’s future. Investing in cryptocurrency can come with hefty taxes, which could limit the number of people willing to invest. In addition, lawmakers are still figuring out how to regulate the crypto market. This could result in more volatility and greater risk.

Before you invest in Ethereum, think about your tolerance for risk. Would you be able to sleep at night if your investment fell by 20%? What about 50%? Ethereum is a volatile investment, so be sure you’re comfortable with risk before you buy.

Finally, if you do choose to invest in Ethereum, make sure you have a well-diversified portfolio, and only invest money you can afford to lose. By keeping most of your money in safer investments, you can limit your risk in the event that Ethereum takes a turn for the worse.

Ethereum could end up being a smart investment, but it’s not right for everyone. Be sure to weigh the pros and cons as well as consider your own tolerance for risk. Whether you choose to invest or not, be sure you’re making this decision carefully.

Ethereum, the world’s second-largest cryptocurrency, soars above $4,000 for the first time

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Omar Marques | LightRocket | Getty Images

LONDON — Ether surged past $4,000 Monday to hit a new record high, extending a stunning rally for the world’s second-largest cryptocurrency. Ether, the digital token of the Ethereum blockchain, rose to an all-time high of $4,196.63 at 12:15 p.m. ET, according to Coin Metrics. It now has a total market value of $483.4 billion, less than half bitcoin’s $1.09 trillion. As of around 12:30 p.m. ET, ether was up 8.1% at a price of $4,187.32. Bitcoin, on the other hand, inched up 1.1% to $57,962.18. Once in bitcoin’s shadow, ether has seen parabolic gains recently as investors look to other cryptocurrencies for returns. Bitcoin fell over 2% in April, while ether rose more than 40%. The entire crypto market is currently worth around $2.5 trillion, according to CoinMarketCap, on the back of growing interest in the space.

Mainstream investors and some corporate buyers like Tesla flocked to bitcoin earlier this year, viewing the digital coin as a potential inflation hedge as central banks around the globe print money to relieve coronavirus-battered economies. Major Wall Street banks like Goldman Sachs and Morgan Stanley have also sought to provide their wealthy clients with bitcoin exposure. However, some investors still aren’t buying the crypto craze. Michael Hartnett, chief investment strategist at Bank of America Securities, said bitcoin’s rally looks like the “mother of all bubbles,” while Alvine Capital’s Stephen Isaacs said there are “no fundamentals with this product, period.”

Ethereum vs. bitcoin

Founded in 2013 by Vitalik Buterin and a host of other software developers, the Ethereum network lets people build applications on top of it. Ether is the network’s native currency. Bitcoin and ether are similar in that they are both digital currencies. But they have their differences. Whereas bitcoin is viewed by its proponents as a store of value akin to gold, Ethereum aims to be the infrastructure for a kind of decentralized internet that isn’t maintained by any central authorities.

Ethereum: How High Could This Stock Climb?

Ethereum, the second-most popular cryptocurrency, has outperformed its rival throughout 2021. Year to date, Ether has delivered a 410% return compared to Bitcoin’s 90% return over the same period.

Now, some experts believe the rally could intensify. Price targets on the digital asset have been raised in recent months and could indicate much more reliance in this ongoing bull market. If you’re an investor, here’s what you need to know.

Upcoming upgrades

A major upgrade to the Ethereum network is now scheduled for July 2021. The Ethereum Improvement Proposal (EIP)-1559 could change the way fees are handled on the Ethereum network. The upgrade will make fees on the network lower and more predictable. The upgraded mechanism will also “burn” or eliminate some Ether every time a transaction occurs.

This should make the ecosystem cheaper to use. It also limits the supply of outstanding ETH, which may boost the value of the remaining tokens. In short, the upgrade adds much needed value for developers and investors. It’s set to be implemented in July during the so-called “London hard fork” of the network.

Growing adoption

Over the past year, institutions and tech companies have adopted Ethereum in a big way. Institutional investors purchased more than $30 million worth of ether as of the end of last month, according to data compiled by Coinshares. Meanwhile, the number of wallets holding more than one ETH has increased substantially.

According to data published by Glassnode, there is twice as much ETH locked into decentralized finance applications than crypto exchanges. Meanwhile, nearly one quarter of all outstanding ETH (23%) is locked into a smart contract. Ether is being bought and used much more than most cryptocurrencies. This utility should make it more valuable over time.

Ethereum price targets

A survey by finder.com found that most industry insiders and experts expect the price of each ETH to surpass US$19,842 by 2025. That represents 400% upside from current levels.

Canadian investors can easily capture that upside by simply investing in an Ether exchange-traded fund (ETF). This year, more than three such ETFs were listed on the stock market. All of them offer exposure to the price movements of this digital currency. The CI Galaxy Ethereum ETF (TSX:ETHX.B) stock is a good example.

The advantage is that an ETF can be held in a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) so you can offset taxes on your potential 400% gain.

Bottom line

Ethereum has outperformed Bitcoin over the past year. Given the base effects, utility of the network and growing adoption, Ether could sustain this run for the foreseeable future. Indeed, some experts believe there is much more upside left. If you agree, Ether ETFs are a convenient way to gain exposure to this digital asset.

Bear in mind, this sector is still very nascent and speculative. It may be best to deploy cash only if you’re comfortable losing that cash if and when Ethereum becomes volatile.