Growth stocks are getting rattled. Bonds are offering a pittance in yield. Real estate could be risky once mortgage rates start to rise. Cryptocurrency is naturally more volatile than any of those conventional asset classes, but if you can stomach the risk, a little skin in digital currencies could offer you some handy diversification in this challenging investing climate.
You're probably familiar with Ethereum (ETH -1.97%). It's the world's second most-valuable cryptocurrency. The price swings aren't for the timid -- or impatient -- but the popular token has rewarded investors so far. As of early Thursday evening, Ethereum is up 5%, 6%, and 676% over the past week, month, and year, respectively.
Ethereum also happens to be my top crypto to own in December. Let's get into why it's a smart buy for risk-tolerant investors right now, ahead of some interesting bullish developments that should take shape in the months and years to come for the digital currency.
ETH for the Holidays
Before diving into the exciting transformation taking place in the coming months for Ethereum that will make the crypto even better, let's address why it makes sense to purchase this month. Ethereum has historically performed pretty spectacularly in the final month of the year.
- December 2020: 78%
- December 2019: 39%
- December 2018: (20%)
- December 2017: 48%
- December 2016: 35%
- December 2015: 148%
We're talking about gains of at least 35% -- in just the final month of the year -- in all but one of the last six years. A single month in Ethereum has been enough to beat the market over the course of the year in 5 of the past 6 winning Decembers.
Bears will argue that the past is tainted by survivorship bias, and I'll accept some validity to the claim. Ethereum is popular now because it has soared in the past. I get it. However, it still doesn't take away from the digital-currency's success.
The brutal crypto crash of 2018 merely interrupted the revolution. Ethereum continues to trounce the market and is about to get even better.
Crypto with a purpose
A knock on crypto, in general, is that it's little more than a digital vanity plate. It's a virtual asset that trades on the same emotions that dictate the rise and fall of baseball cards or Beanie Babies, lacking the fundamentals that make it easier to gauge a publicly traded company's worth.
Ethereum is already bigger than that. Its bar-raising blockchain tech is already being put to use: The world's second most-valuable cryptocurrency is playing a starring role as a decentralized platform.
Developers are leaning on Ethereum to fuel smart contracts and other decentralized features to tackle everything from gaming to supply-chain management to identity management. Have you heard of nonfungible-tokens (NFT)? Ethereum is at the heart of most NFT transactions. It provides the building blocks for more than 3,000 decentralized apps.
No crypto is perfect. Ethereum is currently limited in terms of its efficiency in terms of mining, as well as transactional use, but that should change by early next year. Ethereum is shifting from proof-of-work algorithms to proof of stake, a migration process that will make it more eco-friendly to generate new tokens. The move will also open the door to improve the volume and speed of transactions, while also dramatically lowering transaction costs.
There are no guarantees that the migration to proof of stake will happen soon and be free of hiccups. However, that uncertainty is priced into the crypto now. Buying later -- when Ethereum becomes an even better digital currency at some point in 2022 -- will likely mean investing in the crypto at a higher price.
It's December. Ethereum has owned the month in five of the past six years. It's my top cryptocurrency to buy this month.