The big story around Ethereum (ETH 1.37%) this year was The Merge -- the moment when Ethereum transformed into a proof-of-stake blockchain with faster transaction processing speeds, huge new energy efficiencies, and higher throughput capacity. However, big price gains for Ethereum never materialized. Sure, there was a brief burst in price over the summer when investors piled into Ethereum ahead of The Merge, but Ethereum is still down nearly 60% for the year.
But there is a chance that the much-anticipated gains for Ethereum will materialize sooner rather than later. If you believe that Ethereum will eventually regain its former momentum, then it's time to start taking two key steps before Ethereum skyrockets in value.
Get up to speed on Ethereum's roadmap
One reason the big gains for Ethereum never materialized in September, of course, is ongoing uncertainty about the overall health of the global economy. However, another reason Ethereum never got the price boost many expected was that, quite frankly, many investors may have overestimated some of the gains in efficiency and cost savings from The Merge. Even though Ethereum repeatedly warned about expecting too much in 2022, investors didn't realize that goals such as 1 million transactions per second might still be several years away.
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As Ethereum co-founder Vitalik Buterin told developers this summer, even with The Merge, the transition to Ethereum 2.0 might only be 55% complete. There's still more to come in 2023 and beyond. Buterin refers to the next cycle as the "Surge, Verge, Purge, and Splurge." We're now in the Surge. Ethereum is hunkering down and working on ways to make its blockchain more efficient. For example, Ethereum is now developing a process called "sharding" that some hope will lead to another network upgrade. The result of all this, of course, will be even faster processing times and less congestion. By understanding where we are in the full transition to Ethereum 2.0, you will be much better positioned to understand when Ethereum might eventually skyrocket.
Start tracking Ethereum's Layer 2 solutions
Ethereum is a Layer 1 blockchain, meaning that it is a core, fundamental layer. But there are different Layer 2 blockchains that sit on top of this core layer, and their job is to make Ethereum run faster, cheaper, and more efficiently. For that reason, these Layer 2s are called "scaling solutions." It is cheaper and easier to issue non-fungible tokens (NFTs) on a Layer 2 blockchain like Polygon (MATIC +0.00%), and that's why we're seeing an explosion of activity related to Polygon NFTs -- digital ownership rights to art, video and collectibles. Investors might see all this activity on Polygon and not realize that it is really a "win" for both Polygon and Ethereum. In short, investors might now be underestimating the full potential of Ethereum because they are not taking into account all this activity with Layer 2 scaling solutions.
Once you understand this relationship between Layer 2 solutions and Ethereum, it's easy to see why some investors are enamored of Layer 2 scaling solutions like Polygon. These Layer 2 solutions are where all the action is with Ethereum right now. By putting these Layer 2 solutions on your investment radar now, you'll be able to spot other potential investment options if Ethereum skyrockets in value. They will all come along for the ride. This is what happened over the summer, when investors started buying Polygon at the same time as Ethereum.
Can Ethereum regain its all-time high?
The big question for investors right now, of course, is whether Ethereum can ever regain its all-time high of $4,891.70. That would require Ethereum to more than triple in value from its current price of about $1,380. While this might seem unlikely to many, especially given Ethereum's relatively sluggish price movement in the wake of The Merge, it is certainly not out of the question. For example, some experts are predicting that Ethereum could eventually hit a price of $5,000.
CRYPTO: ETH
Key Data Points
You can start taking steps now to prepare for this potential rise. Get up to speed on Ethereum's development roadmap, and start building your familiarity with Ethereum's Layer 2 scaling solutions. Both of these moves will make you a much smarter investor when it comes to Ethereum. Just realize, of course, that investing in any cryptocurrency is inherently risky. There might be sharp swings downward as well as upward. But if you are confident in Ethereum's development path, Ethereum could be a very good long-term investment for your crypto portfolio.
