The crypto market has been having a tough year, to put it mildly. Prices are down across the board, the FTX implosion has left a bad taste in many investors' mouths, and more skeptics are voicing their concerns about the industry's future. While Ethereum (ETH 2.11%) has consistently given investors reason to be optimistic, it's also been hit hard -- falling nearly 70% from its peak in late 2021.
Given everything that's been happening in the crypto market lately, is Ethereum still a strong investment? Or is it losing steam in 2023? Here's what you need to know.
Reasons to be optimistic
Despite the current market volatility, 2022 was a big year for Ethereum. The network successfully completed The Merge, transitioning from a proof-of-work (PoW) mining protocol to proof of stake (PoS), and dramatically decreasing its energy usage.
This was a major win for Ethereum and could also help it gain market share from the notoriously energy-intensive Bitcoin. It also sets the stage for future updates that will help improve Ethereum's speed and efficiency.
Perhaps the biggest reason to be optimistic about Ethereum's future, though, is its potential in the decentralized application space. Ethereum is one of the most diversified investments in the crypto space because it's the leading blockchain within multiple niches. It's the most popular platform for NFT marketplaces, for example, and a key player in the metaverse. Its smart-contract abilities could also revolutionize a variety of industries.
The blockchain can also host other cryptocurrencies. Ethereum is home to well-known projects like Shiba Inu, Polygon, Decentraland, and The Sandbox. If NFTs, the metaverse, smart contracts, or any of these Ethereum-hosted cryptocurrencies succeed, the network will benefit from it.
Downsides to consider
The biggest reason to be skeptical of Ethereum right now is the fact that crypto, in general, is still speculative. Nobody knows for certain whether crypto will succeed over the long term or if it will even exist a decade or two from now. If the entire sector fails, it won't matter how strong the individual cryptocurrencies are.
Also, because the crypto industry moves so quickly, a new blockchain could disrupt Ethereum's competitive advantage. While Ethereum is a clear leader in the crypto space, its sluggish transaction times and high fees have been holding it back -- and users are getting frustrated.
The network does have updates in the pipeline to address these issues. But the major ones aren't expected to be completed until late 2023 or 2024, at the earliest. (And Ethereum has a history of delaying upgrades by months or even years.)
That's a long time in the crypto world, and a smaller competitor could swoop in and steal market share from Ethereum in the meantime.
Is Ethereum still a good investment?
When deciding whether to invest in Ethereum in 2023, it's important to weigh risk versus reward. The cryptocurrency has its drawbacks, and the future of crypto, in general, is still uncertain. There are no guarantees that any investment will survive over the long term, so consider your risk tolerance before you buy.
That said, Ethereum remains one of the strongest crypto assets in the game right now. It's not only the second-most-popular crypto behind Bitcoin, but it's also diversified into several different areas of the industry -- from NFTs to the metaverse, and more.
In short, Ethereum is a key player in the crypto industry. Despite its short-term volatility, it has a better chance of succeeding over the long run than many other cryptocurrencies. While nobody knows for certain what will happen, Ethereum still has plenty of growth potential.
