After approaching a $3 trillion value in early November, the cryptocurrency market has fallen roughly 33% and is now worth just shy of $2 trillion. Ethereum's (ETH +0.87%) chart follows a similar trajectory. But with the general market weakness, now might be a good time for investors to hop on board.
Based on its recent price of about $3,000, a $5,000 target for ETH implies about 67% upside. In the world of cryptocurrencies, this type of move can happen in a relatively short period of time. However, because the market is extremely volatile, it's hard to predict if this will happen in 2022.
Nonetheless, I think Ethereum's price could reach $5,000 within the next few years, making it a solid buy right now. Let's take a closer look.
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Monster historical returns
You'd probably struggle to find a single asset that has outpaced Ethereum in recent years. Since March 2017, the popular programmable blockchain has seen its coin skyrocket by 6,850%. For comparison's sake, the S&P 500, an index of 500 large U.S. companies, produced a total return of 111% during the same five-year period.
If the past is any indication of the future, then the odds are stacked in Ethereum's favor for reaching the $5,000 milestone -- a price it actually come close to reaching last November.
CRYPTO: ETH
Key Data Points
A major catalyst
In 2021, the surge in decentralized applications (dApps), like those for non-fungible tokens (NFTs), gaming, and decentralized finance, led to higher transaction fees on the Ethereum network. Because it can only handle 15 transactions per second (TPS), congestion has spawned the creation of competing blockchains like Cardano and Solana. Scalability, which is absolutely necessary for crypto to hit the mainstream, has always been a difficult problem to solve when it comes to blockchain technology.
Luckily, the ETH2.0 upgrade is in the works, with some expecting the network to successfully transition from the energy-intensive proof-of-work mechanism to validate transactions to proof-of-stake sometime in the second or third quarter of this year. Not only will this alleviate environmental concerns, promising to use 99% less power, but it would theoretically allow Ethereum to process 100,000 TPS.
For Ethereum to handle the booming dApp ecosystem, this is a critical update. Both Cardano and Solana are touted for their unique consensus mechanisms and scalability, already showcasing real-world use cases. So, it's paramount that Ethereum makes a successful switch to proof-of-stake in order to keep its standing.
Potential delays are certainly in the realm of possibilities, but if ETH2.0 is implemented without any major hiccups, it would provide a catalyst to Ethereum's price. The fact that Ethereum has the most monthly active developers (more than 4,000) working on improving its network bodes well for its future to be a huge winner in the crypto world.
Expecting a 67% gain by the end of this year is a lot to ask for any asset, even cryptocurrencies. But I think that the successful integration of the Ethereum upgrade, as well as heightened interest from both developers and users, increases the chances that ETH will hit $5,000 in the next few years.
