Why Ethereum Will Be The Next Major Cryptocurrency to Explode
- Despite rising 480% in 2020, Cameron Winklevoss says ethereum’s cryptocurrency ether “is easily the most underpriced crypto in the world right now.”
- Here’s why he could very well be right.
Here are the basics:
- Ether is the second-largest cryptocurrency in terms of market cap, at $115.8 billion, only behind Bitcoin.
- Ether allows users to be their own bank and send P2P payments that are decentralized and secure.
- Ether does not have a fixed supply like that of bitcoin.
- Ethereum has more applications than bitcoin, which is only meant to be a unit of currency on a P2P payment network.
- As well as being a cryptocurrency, Ethereum is also an open-source computing platform.
- The ethereum blockchain (transaction database) allows users to run smart contracts, which facilitate transactions over the ethereum network.
- Users who verify, execute, commit and broadcast transactions over the Ethereum network receive an ether reward for doing so.
Here’s why you should care:
- Ether is an incredible investment opportunity that will benefit from growth in the decentralized finance space.
- Ether is not strongly correlated to the stock market and is not a cyclical asset.
- Ether’s price is rallying hard and earning interest from retail and institutional investors alike. Ether is up 45.41% YTD in 2021 and was up 480% in 2020.
- The Chicago Mercantile Exchange (CME) announced it will launch a futures contract on ether in February of 2021. Three years ago, CME launched futures for bitcoin. Although the launch of bitcoin futures led to a massive short-term selloff for bitcoin because it allowed short-sellers into the market, the news is without a doubt encouraging for ether. The CME news shows the institutional demand for ether and will also bring more liquidity for investors and greater marketability.
- Ether is secure and decentralized.
- Ethereum recently launched Eth2, where it made a transition from its current proof-of-work mechanism to a proof-of-stake mechanism. This was essentially a software update that will boost ethereum’s scalability, security, and economic efficiency. Ethereum’s transition from PoW to PoS was one of the most discussed and anticipated events in the crypto community.
- Ethereum supports the crypto market at large. Other firms can use ethereum’s decentralized applications (dapps) and smart contracts to build out their own projects, apps, software, etc.
- Ethereum makes decentralized finance (DeFi) projects possible. “Decentralized Finance (DeFi) is a movement that leverages decentralized networks to transform old financial products into trustless and transparent protocols that run without intermediaries.” DeFi projects include platforms that support lending, borrowing, earning interest, and private payments, with no personal data required. Some examples include MakerDAO, Compound, Synthetix, and Yearn Finance.
- You can stake your Ethereum and earn up to 5.25% interest on it.
Here is why eth could be in store for an all-time-high shattering rally:
- Borrowing costs are low and are expected to stay low.
- Buying cryptocurrencies is easier than ever before, as exchanges expand their product offerings, plan IPOs, and investment firms launch new crypto investment vehicles.
- Ethereum has many useful applications that are now being fully appreciated.
- Ethereum recently launched Eth2, which is going to allow the Ethereum blockchain network to grow significantly over time. This would also enable decentralized finance (DeFi) to grow exponentially in the future.
- Decentralized finance is growing. “The total value of DeFi projects has surpassed $14 billion, after peaking at $16 billion. If Ethereum gets cheaper to use through Eth2, DeFi would be able to grow much faster.”
- Ether price is currently spiking on the back of bitcoin’s rally, which will most likely continue. With Bitcoin currently trading above its 2017 all-time highs by over 50%, cryptocurrency analysts are predicting that Ethereum will be next to the major cryptocurrency to break through its all-time highs.
- Ethereum recently broke $1000 per token for the first time since 2017, a major psychological level. Ether’s 2017 price rally saw the cryptocurrency reach an ATH of $1420.
- Ether is currently trading 40% lower than its ATH. If Ether were to match Bitcoin’s rally and power past its ATH by 50% this year, it would be trading at $2100, a 100% premium to its current price.
- Trading volume is spiking. On January 4th, Ether hit $5.8 billion in trading volume, compared to $1.5 billion the month before.
- Institutions and big players are buying ether. Analysts at Santiment said that the number of users holding Ethereum at least 10,000+ ETH has increased in the past two months to 39.
Some potential headwinds for ether:
- Large-scale profit taking could derail this rally quickly.
- Correlation to bitcoin. If bitcoin were to sell off, ether would surely be next.
- High transaction fees. Ether’s transactions fees have been high lately as a result of the transition to Eth2.
- Macro changes such as the strengthening of the dollar or lower inflation and other macro factors could hurt ether.
- Regulatory changes such as the banning of purchasing crypto assets on exchanges, new investment regulations would hurt ether.
How to invest in ether:
- Investors can invest begin investing in cryptocurrencies directly on crypto-only exchanges such as Coinbase, Binance, or Gemini, or indirectly through crypto investment trusts such Grayscale through a brokerage account.
How to mitigate risk when investing in ether:
- Take a long-term focus. Investors who take a long-term focus are less likely to be affected by short-term price swings. Because Ethereum and other cryptocurrencies are volatile, an active approach can create undue stress and spur trading activity that is not in line with an investor’s long-term goals and that is detrimental to performance.
- ‘Setting and forgetting’ can be an effective approach to reap long term performance without undue short-term stress.
- Only invest disposable income. Because cryptocurrency prices are volatile, and investors have the potential of losing some if not, all of their investment, they should only invest their disposable income.
- Don’t make crypto your largest or only asset allocation. While cryptocurrencies have real investment potential, one should never only invest in one asset class or concentrate all of their assets into a young asset class such as crypto.
- Dollar-cost averaging is a great way to reduce the risk of adverse price swings when investing in Ethereum. By investing incrementally over time, buyers can spread out risk and take a more long term focus.
- Don’t be illusioned by ‘get-rich-quick’ crypto offers. Despite all of its legitimacy, the cryptocurrency space is filled with get-rich-quick scams. Please trade with caution and operate as if someone is always trying to get one over on you.
The opinions expressed in this article are solely my own and not that of any entity, company, or institution that I am associated with. This article was written by myself for the purpose of examining a key market trend. At the time of writing, I am long Ethereum and other cryptocurrencies. Please do not take the opinions expressed in this article as fact. Investing in cryptocurrencies and other risky assets can result in losing some if not all of your investment. Investors should do their own thorough research. Please invest at your own discretion in a way that is appropriate for you.