Ark Invest Chief Executive Officer Cathie Wood has never shied away from bold predictions. In 2018, she put a price target on Tesla that implied a $672 billion market cap. Of course, Tesla has since exceeded that valuation by leaps and bounds -- but at the time, the company was worth just $56 billion.
Wood is also a well-known crypto bull. In fact, a recent report from Ark Invest suggests that Ethereum (ETH -1.54%) could achieve a valuation of more than $20 trillion in the next 10 years. That implies 5,400% upside from its current price. Given Wood's bullish outlook, let's take a closer look at this cryptocurrency.
Here's what you should know.
The first programmable blockchain
Ethereum has pushed the limits of blockchain technology. Rather than simply securing transaction data, the Ethereum blockchain allows developers to build self-executing computer programs known as smart contracts. That utility has revolutionized the industry, giving rise to a thriving ecosystem of decentralized applications (dApps), decentralized finance (DeFi) services, and non-fungible tokens (NFTs).
Not surprisingly, Ethereum has faced an onslaught of competition in recent years, and many rival blockchains are faster and cheaper. Even so, Ethereum still ranks as the most popular decentralized ecosystem of software and services. In fact, it powers nearly 75% of all dApps across any blockchain. Better yet, Ethereum accounted for 78% of all NFT sales last year, and it's the leading DeFi ecosystem, with $114 billion invested on the platform.
The disruptive impact of decentralized finance
DeFi services allow investors to lend, borrow, invest, and earn interest on money without involving banks or other financial institutions. To that end, DeFi makes financial services more efficient and more accessible. Case in point: The average U.S. savings account currently pays a 0.06% annual percentage yield (APY), but your return could be orders of magnitude higher in a DeFi protocol. For instance, the borrowing and lending platform Compound currently pays 2.3% APY on USD Coin deposits, a stablecoin pegged to the U.S. dollar.
Ark Invest sees Ethereum's leadership in DeFi services as a significant growth driver in the years ahead. That's true for two reasons: First, whenever an investor engages with a DeFi product, the transaction fees are paid in the native cryptocurrency. In the context of Ethereum, that means the ETH coin, also known as ether. Second, ether itself is the preferred collateral in DeFi, according to Ark's research. To that end, rising adoption of DeFi should create demand for the ETH coin, pushing its price higher.
The disruptive impact of non-fungible tokens
NFTs are digital certificates of ownership. While the term NFT is most often associated with JPEG art like CryptoPunks, any asset can be tokenized on a programmable blockchain. For instance, healthcare records could be turned into NFTs to better protect patient privacy, and education transcripts could be turned into NFTs to streamline the college admissions process. Even physical assets like tickets, cars, real estate, and collectible items could be tokenized to simplify transactions and proof of ownership.
Given the potential, Ark sees Ethereum's leadership in NFTs as a key advantage. It costs money to mint and buy NFTs, and when those transactions take place on Ethereum, the ETH coin is used as payment. In other words, as the NFT market continues to grow, demand for ETH should drive its price higher.
As a final thought, many investors are familiar with OpenSea, the world's most popular NFT marketplace. It should come as no surprise that OpenSea is built on Ethereum (among other blockchains), but so is the recently launched Coinbase NFT marketplace. And given its position as the largest U.S. cryptocurrency exchange, its new Coinbase NFT marketplace could strengthen Ethereum's competitive position in the coming years.
A worthwhile investment
Ark makes a strong case for owning Ethereum. Yes, numerous competing blockchains are gaining ground, but Ethereum has maintained its market leadership despite soaring transaction fees. That says a lot about the platform's ability to create value for users. Better yet, a scaling solution is set to go live in 2023, supercharging Ethereum's throughput and lowering fees. That catalyst should reinforce its leadership position.
So can Ethereum soar 5,400% over the next decade? It's possible, though Ark's price target may be a little too optimistic. Regardless, Ethereum has positioned itself as a key enabler of DeFi services and NFT sales, and that advantage could create significant wealth for long-term investors. From that perspective, this cryptocurrency is worth buying.