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Ethereum Is Crashing: Is Now the Time to Invest?

By Katie Brockman - Jun 24, 2021 at 9:00AM

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The cryptocurrency is in a slump. Could it be a smart buying opportunity?

Despite their massive rally earlier this year, cryptocurrency prices have plunged yet again. Ethereum ( ETH -0.28% ) has also taken a turn for the worse, with its price falling by more than 55% since its peak on May 12.

While these extreme downturns can be nerve-wracking, there is a silver lining: The most expensive cryptocurrencies are now on sale.

As of this writing, Ethereum is priced at $1,985 per token. That's down significantly from its peak price of around $4,000 per token last month. If you've had your eye on this particular cryptocurrency but were waiting for it to become more affordable, now may be your chance to buy it when it's on sale.

That said, investing in cryptocurrency isn't for everyone, regardless of how low the price drops. If you're considering investing in Ethereum, here's what you need to know first.

Blue digital piggy bank.

Image source: Getty Images.

Understanding volatility

All investments are subject to some degree of volatility, and the stock market is prone to corrections and downturns. However, as this most recent crash has proven, cryptocurrency is especially volatile.

Ethereum is no stranger to market turbulence, either. While this recent price drop may be extreme, it's not the worst this cryptocurrency has seen; back in 2018, Ethereum's price plummeted by nearly 95% over the course of the year.

If you're going to invest in Ethereum (or any cryptocurrency), make sure you have the stomach for this type of volatility. It's highly likely that there will be more crashes like this in the future, and there's also a chance Ethereum won't succeed at all over the long run. Cryptocurrency is still highly speculative, so whether it's still around in 10 or 20 years is anyone's guess right now.

Is Ethereum the right investment for you?

It's also important to do your research to make sure you're investing in the best cryptocurrency for you. Ethereum does have plenty of advantages, and it is one of the stronger players in the crypto space.

The Ethereum blockchain is not only home to its native token, Ether, but it's also used for a variety of other purposes. Developers can build "smart contracts" on the blockchain, which allow people to safely and easily transfer money, property, or any other items of value without a middleman like a lawyer.

The Ethereum blockchain is also the foundation for non-fungible tokens (NFTs) and decentralized finance, giving it an advantage outside of the cryptocurrency space.

Pile of gold tokens.

Image source: Getty Images.

Finally, Ethereum developers are working on an update to the technology, Ethereum 2.0, which will be released later this year or early next year. This update will make Ethereum more environmentally friendly, reducing its energy usage by around 99.95%. As more and more investors and regulators show concern over cryptocurrency's energy consumption, this move could give Ethereum a major advantage.

That said, Ethereum has its downsides as well. Cryptocurrency in general is still a high-risk investment, and Ethereum doesn't have as much name recognition or acceptance among merchants as Bitcoin. If it's going to have any staying power, it's going to need to stay competitive in the industry.

Ethereum's most recent price plunge may be a good opportunity to invest, but make sure you know what you're getting into. Cryptocurrency isn't right for everyone, and you should only consider investing if you have a high tolerance for risk and are only investing money you can afford to lose. Otherwise, it may be best to steer clear for right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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