Ethereum (ETH -0.16%) has had a phenomenal year, with its price soaring by nearly 700% over the past 12 months. It's also outpaced Bitcoin, which has "only" increased by around 177% over the past year.
All that growth also results in a higher price, however. Ethereum is one of the most expensive cryptocurrencies out there, currently priced at more than $4,100 per token. It also reached an all-time high of over $4,800 per token last month, and now it's back on an upward swing after a rough couple of weeks.
If you're eager to invest in Ethereum but haven't gotten the chance yet, right now may not seem like the best opportunity to buy. By investing now, you'll be buying Ethereum at one of its highest prices of the year.
Does that mean it's too late to buy? Not necessarily.
Where is Ethereum going in 2022?
Of course, it's impossible to predict exactly how any stock or cryptocurrency will perform in the future, as past returns don't necessarily predict future performance. But there's one big reason why 2022 could be even better for the cryptocurrency.
Ethereum is currently in the process of transitioning to an updated version, Ethereum 2.0, and the rollout is expected to be completed sometime next year. This upgrade involves moving from a proof of work (PoW) mining protocol to a proof of stake (PoS) system, which will make Ethereum both faster and more environmentally friendly.
With a PoW protocol, crypto miners verify transactions using high-powered computers that solve complex puzzles. This is not only a slow process but also consumes an enormous amount of energy.
With a PoS system, transactions are validated by users who put a portion of their crypto holdings at stake for a chance to earn rewards. This process is significantly faster and requires around 99.95% less energy than a PoW protocol.
Once the Ethereum 2.0 rollout is complete, Ethereum will have a serious competitive advantage over other cryptocurrencies. Not only will it be faster and more efficient than Bitcoin (which still uses a PoW protocol), but it will also be able to compete with newer cryptocurrencies such as Solana and Cardano that already use a PoS protocol.
Is Ethereum right for you?
Next year could be a big year for Ethereum, and investing now may be a smart move. That said, Ethereum (and cryptocurrency, in general) isn't the right investment for everyone.
While Ethereum's future looks promising, there are no guarantees that it will perform well over the long run. Cryptocurrency is still highly speculative, and whether it can be a solid long-term investment is still up for debate. Its future is especially uncertain as lawmakers begin to crack down on crypto with stricter regulations.
Before you buy, consider your tolerance for risk, and only invest money you can realistically afford to lose, just in case Ethereum doesn't succeed. Also, be prepared to hold your investment for the long term. Despite its recent record highs, Ethereum still experiences a lot of short-term volatility. There will likely be more ups and downs as Ethereum 2.0 rolls out, so don't go into this investment with the expectation of getting rich overnight.
Ethereum has had a great year, but the best may be yet to come. If you haven't invested yet, it's not too late -- just be sure you're willing to take on the risks involved in buying cryptocurrency. While there are never any guarantees when investing, Ethereum may have a bright future ahead.