The Ethereum (ETH 0.39%) cryptocurrency reached an all-time high of $4,892 per token in November 2021. A brutal correction has since brought Ethereum's prices 77% lower, and they have generally been stuck below $1,200 per token over the last three weeks.
Should you rush to grab some Ethereum while it's cheap, or is this just the start of an even deeper plunge? Let's take a look.
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Please give us a solid rule book
The crypto market is under massive pressure. Surging inflation, fears of another recession, and the lingering pandemic have combined to drive investors away from high-risk assets.
Furthermore, the crypto market suffers from a lack of regulation. A firm legal and regulatory framework for trading, owning, mining, and using cryptocurrencies would be better than the loose rules that are in effect today. Even a downright draconian system of trading limits and taxation could be a huge improvement. As it is, many institutional investors simply won't touch Ethereum and friends until they know what the long-term tax burden and trading rules will look like.
So Ethereum investors want to see the slow gears of bureaucracy grind a bit faster. Any step toward a complete rule book could light a fire under the crypto market as a whole.
Ethereum 2.0, aka the Merge
The technology upgrade formerly known as Ethereum 2.0 is still in the books, just under a different name. The Merge will combine Ethereum's main blockchain network with a different network, called the Beacon Chain. This chain uses a radically different method to validate transactions, replacing the slow and ultra-secure proof-of-work technology with the much faster and more energy-efficient proof-of-stake (PoS) methodology.
This move will address Ethereum's greatest operating problems. The cryptocurrency's electric power consumption will drop 99.95% lower. The new system lets owners earn rewards for staking their tokens. It also paves the way toward further upgrades, speeding up Ethereum's transactions with an efficiency-boosting system known as sharding.
The Merge won't necessarily send Ethereum prices to the moon right away, but it is a crucial improvement to the cryptocurrency's technical foundation that sets the stage for sustainable long-term growth. This event doesn't have a firm date yet, but developers have indicated that it should arrive before the end of 2022.
CRYPTO: ETH
Key Data Points
Sure, Ethereum is a buy today -- in small bites
As you can see, Ethereum has a couple of potentially powerful growth drivers coming up. At the same time, this blockchain network's chosen corner of the market is teeming with smaller rivals. If so-called "Ethereum killers" such as Cardano (ADA 0.47%) and Avalanche (AVAX +0.52%) manage to win over developers before the Merge takes place, Ethereum could lose a significant slice of the smart-contracts market. Winning those lost projects back could be a difficult task, even for a fully upgraded Ethereum ecosystem with PoS validation and sharding.
And who knows exactly where Ethereum's price chart is going next? This nearly monthlong stop at roughly $1,200 per token could serve as a platform to launch a sustained rebound, or it could be a temporary resting level on the way to even deeper discounts. Macroeconomic forces are drawing that chart at the moment, and it could take years before Ethereum's price truly reflects its use in decentralized finance, cloud-based gaming, and other real-world applications.
Ethereum's first-mover advantage created a massive developer platform, and this unique advantage should keep the cryptocurrency relevant for years to come. Building a small position in Ethereum while it's changing hands for less than $1,200 could prove lucrative in the long run.
However, I'm not saying that you should bet the farm, back up the truck, or bet your life savings on Ethereum today. This is still a speculative investment that could go much further down, and there's no guarantee that the token will ever stage a full recovery. This promising-yet-risky situation requires patience and care.
Buying Ethereum in several smaller bites as the price chart evolves could be the best idea here. That way, you get the best of both worlds. If the price drops, you can enjoy the opportunity to buy more at a better price. When it goes up, you can celebrate your gains instead. And you're always free to either speed up your investments or stop your buys as Ethereum's long-term story develops.
