The beginning of the year can be a fantastic opportunity to make adjustments to your portfolio and add new investments to the mix.
If you've been on the fence about whether to invest in cryptocurrency, right now might be your best chance to buy. Crypto prices have been steadily dropping over the past couple of months, creating an opportunity to buy at a discount.
Choosing the right cryptocurrency is critical, though. Only the strongest investments will be able to weather severe volatility, and some cryptocurrencies may not be able to recover from downturns. There's one crypto, however, that I'll be stocking up on throughout 2022: Ethereum (ETH 1.08%).
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Why now is the best time to buy Ethereum
Ethereum was a strong performer in 2021, with its price soaring by more than 400% last year despite significant volatility within the crypto market. While it has fallen by roughly 36% since its all-time high in November, Ethereum still has plenty of potential.
This year could be promising for Ethereum, as it's expected to complete the next phase of its transition from a proof of work (PoW) protocol to a proof of stake (PoS) protocol. This is a massive improvement for the network, and it could help Ethereum scale more quickly.
Under a PoW protocol, transactions are verified using high-powered computers that must solve complex calculations. Not only does this process require an incredible amount of energy, but it's also slow. A PoS protocol, however, uses a process called staking to verify transactions, where users put a portion of their crypto holdings at stake for a chance to earn rewards.
Once Ethereum completes its transition to PoS, it will be faster, more efficient, and more affordable to use. It also has the potential to outpace Bitcoin (BTC 1.30%), which still uses a PoW protocol. Ethereum has been steadily gaining market share in the crypto space, and this upgrade could help it close the gap between it and its largest competitor.
Where is Ethereum headed in 2022?
Not only is Ethereum becoming stronger with its update, but it's also a major player in several growing markets including decentralized finance (DeFi) and non-fungible tokens (NFTs).
The Ethereum blockchain is already the biggest player when it comes to DeFi projects and NFT marketplaces. However, smaller competitors like Solana (SOL 0.94%) and Cardano (ADA 3.44%) have taken advantage of Ethereum's sluggish transaction speeds, and they've been giving it a run for its money.
Once Ethereum completes its upgrade to PoS, though, it will have an easier time keeping up with the competition. Ethereum could potentially handle up to 100,000 transactions per second after its upgrade, compared to Solana with 65,000 transactions per second and Cardano at roughly 250 transactions per second.
This increased speed means Ethereum will be able to scale at a more affordable price to users, helping it remain a top player in the world of decentralized applications. As the DeFi movement continues to grow and NFTs gain popularity, Ethereum is poised for serious growth in 2022 and beyond.
Is Ethereum right for you?
Ethereum may have a bright future, but it's not right for everyone. Before you buy, consider whether cryptocurrency fits your personal preferences.
Crypto, in general, is highly speculative and volatile. Despite its advantages, nobody knows for certain whether Ethereum will still be around in a few years or decades. If the public is not willing to adopt decentralized applications like DeFi or NFTs (or if crypto in general never catches on), Ethereum will have a tough time surviving over the long run.
Even if Ethereum does perform well over the long term, it will likely be a bumpy road along the way. There will probably be hiccups as it finishes rolling out its update, which could lead to significant volatility.
Before you buy, think about whether you can tolerate your investments falling by 30%, 40%, 50%, or more. These types of downturns aren't unusual for crypto, and although Ethereum has always managed to recover from dips, it's still important to know what you're getting into before you invest.
Ethereum may be in a slump right now, but the year looks promising for the cryptocurrency. While it won't be the right investment for everyone, it just may be a good fit for your portfolio.
