It has been an extremely difficult year for investors. Not only is the stock market, as measured by the S&P 500 index, down almost 25% in 2022, but cryptocurrencies have seen their values plunge as well. A softening economy, spurred by central banks around the world hiking interest rates, is resulting in a risk-off mentality among market participants. 

The bright spot, though, is that times like these provide astute investors who can take a long-term approach the opportunity to scoop up assets on the cheap. With the price of Ethereum (ETH -0.19%) down 65% in 2022, is now the time for investors to buy the dip? 

Upgrading the underlying protocol 

On Sept. 15, Ethereum completed an update called The Merge, which changed the blockchain's consensus mechanism from a proof-of-work (PoW) system to proof-of-stake (PoS). PoW is known to be very energy intensive and expensive, whereas Ethereum says its move to PoS cuts the network's energy usage by 99.95%. With PoS, new transactions are validated by those who own the most tokens. 

Why was a successful integration of The Merge so important? It all comes down to scalability. Ethereum can only process 12 to 15 transactions per second (TPS), not nearly enough to one day reach mainstream adoption. The Merge paves the way for sharding to be introduced sometime in 2023. Sharding will let the database load be split across the network, which can allow throughput to rise and fees to drop. 

This is critical for Ethereum to continue moving forward. As a blockchain enabled with functionality for smart contracts, the opportunity to create real-world use cases is huge. Ethereum is already a leader in the world of decentralized applications, including decentralized finance protocols and non-fungible tokens (NFTs). 

Even with innovative features on the horizon, ones that potentially will allow Ethereum to process a lot more transactions at much lower costs, there is stiff competition. For example, Cardano and Solana, the eighth and ninth most-valuable cryptocurrencies, respectively, are projects attracting real interest from both users and developers. Both were launched with PoS protocols from the very beginning, avoiding having to make the switch like Ethereum. And they can process a lot more TPS as well. 

Nevertheless, Ethereum still reigns supreme when it comes to smart-contract cryptocurrencies. It's valued at $157 billion as of this writing, and it has produced a stellar return of more than 45,000% since its launch in July 2015. If investors are bullish on the promise of cryptocurrencies and blockchain technology, now might be the time to seriously consider buying Ethereum. 

Understand your risk tolerance 

Cryptocurrencies, including Ethereum, are difficult to value because they don't generate revenue or profit like regular companies do, so knowing the best times to buy or sell can be tricky. This means that it's probably a good idea to closely observe changes in asset prices and be ready to take advantage during times of market weakness, like right now. 

Purchasing Ethereum today, when its price is 74% off its all-time high, could prove to be a winning investment over the long term. But it's wise to only invest money that you're willing to lose, as digital assets are still extremely speculative financial instruments. Plus, investors will have to deal with a ton of volatility. 

If you accept these conditions and you've figured out how much risk you can take, it's time to buy Ethereum on the dip. It might just end up being your best investment over the next five to 10 years.