Ether (ETH 1.34%), the cryptocurrency of the open-source Ethereum blockchain, was first mined in 2015. It achieved parity with the U.S. dollar in its very first year, and its price subsequently skyrocketed to about $3,200 today. If you had bought just 100 Ether tokens with $100 in 2015, your investment would be worth a whopping $320,000 today.
Over the past two years, Ether's price soared 2,220% as Bitcoin's (BTC 0.63%) price rose 431%. Ether has been much more volatile than Bitcoin, but BOOX Research recently estimated that Ether's price could jump to $7,500 by the end of 2022. Could it actually more than double to hit that target? Let's review the tailwinds and headwinds to decide.
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The bull case for Ether
The main bull case for Ether is rooted in Web3 (also known as Web 3.0), an idea that the next version of the world wide web will be built on decentralized blockchain-based services. This would represent a step away from the current Web 2.0 world, in which most digital content, apps, and user data are controlled by a small group of large tech companies.
That movement highlights the key differences between the Ethereum and Bitcoin platforms. The Bitcoin platform enables miners to mine for Bitcoins, but it doesn't support the development of other tokens or apps.
Ethereum enables its users to mine for Ether, but they can also create other tokens, non-fungible tokens, and decentralized blockchain-based apps on the platform. Its smart-contract technology can also be used to secure various financial, gaming, advertising, identity management, and supply-chain applications.
Simply put, Bitcoin is generally considered a potential hedge against inflation and an alternative to fiat currencies. Ethereum is more of a tech play on a decentralized internet, and Ether is the network's most popular token.
If more developers create Web3 applications that aren't fenced in by Big Tech's walled gardens, Ether's price could climb and stabilize, as it's used for more peer-to-peer transactions. The expansion of the metaverse, which could break down barriers between individual apps and blur the lines between the physical and digital worlds, could support that growth.
Another potential catalyst is Ethereum's pending 2.0 (Eth2) upgrade, which will change its mining process from the energy-intensive Proof of Work method to a more energy-efficient Proof of Stake protocol. That shift could reduce Ethereum's mining energy consumption by about 99% and make it a much more environmentally friendly alternative to Bitcoin, which faces a lot of questions about its long-term sustainability.
Those tailwinds could persuade more institutional investors, who have only gradually started to increase their crypto exposure, to accumulate more Ether. If that happens, Ether's price could easily hit $7,500 this year.
The bear case against Ether
Ether seems to be a promising alternative to Bitcoin, but it faces a lot of the same challenges. Government-mandated bans on cryptocurrency trades, a growing number of tax and trading regulations for cryptocurrencies, and wild price swings could all prevent Ether from hitting $7,500 this year.
Ethereum also faces plenty of competition from other environmentally friendly blockchain-based networks like Solana (SOL 1.01%), Avalanche (AVAX 0.69%), and Cardano (ADA 1.15%). These networks also support smart contracts and the development of Web3 apps.
There's also the possibility that all this buzz about Web3 and the metaverse won't actually lead to the creation of a new decentralized internet. Instead, the metaverse could wind up being dominated by tech giants like Meta (formerly Facebook), while Web3 applications will only serve niche audiences and struggle to compete against their bigger Web 2.0 peers.
Lastly, rising inflation and interest rates could cause more investors to dump speculative investments like cryptocurrencies, which really can't be considered safe inflation hedges until their prices actually stabilize.
Should you buy Ether today?
I believe Ether's strengths should offset its weaknesses this year. The potential expansion of the Web3 and metaverse markets, along with the huge improvements in Eth2, are too meaningful to ignore.
That said, I'm not sure if Ether's price will hit $7,500 because the crypto market still faces a lot of hurdles and will remain volatile for the foreseeable future. However, it's still one of the two main cryptocurrencies -- Bitcoin being the other one -- that mainstream investors can consider dabbling in.
