This year has started off with a bang for the crypto market, as prices have surged over the last several weeks. After its long and discouraging slump, many investors are starting to feel optimistic about the future.
Of course, nobody knows for certain how long this upswing will last, but now could be a smart time to buy. Most cryptocurrencies are still trading at well below their peaks, and if prices continue to climb, you could potentially make a lot of money.
Choosing the right investment is critical, however, because they're not all strong options. While everyone's investing preferences are different, there's one crypto I'd buy right now: Ethereum (ETH -2.28%).
Ethereum still has long-term potential
Ethereum has long been a favorite among crypto investors, and it has plenty of advantages that give it a jump on the competition.
For one thing, it's the most popular blockchain for decentralized applications, from DeFi to NFTs to the metaverse and more. It also has the ability to host other cryptocurrencies on its network, including big names like Shiba Inu, Polygon, and Decentraland.
Also, Ethereum developers have proven that they're committed to building updates to improve the network. Last year, they successfully completed the much-anticipated update called the Merge, which moved Ethereum from a proof-of-work protocol to proof of stake, vastly reducing its energy consumption.
The next update on the horizon, Shanghai, is expected to roll out in mid-March. This upgrade will allow users to withdraw their staked Ethereum, which has been locked for roughly two years. Staking is an integral part of the proof-of-stake system, so this is a welcome update for the blockchain.
Risk to consider
All of these advantages help give Ethereum a leg up over its competitors. It has more real-world utility than many other cryptocurrencies, and its commitment to progress makes it more likely to grow over time.
However, Ethereum isn't perfect, and there are some big risks to think about before you buy.
For one, it still struggles with slow transaction speeds and high fees. Ethereum's blazing-fast growth over the past few years has exacerbated these problems, because the increased congestion has made it harder for the network to process transactions. As a result, many frustrated users have flocked to faster blockchains like Solana and Polygon.
Developers do have a major update in the pipeline to combat these issues, but it's currently slated for sometime in late 2023 or 2024. Ethereum also has a history of delaying updates by several months, so it could take even longer -- and that's plenty of time for a competitor to swoop in and steal market share.
And then there's the big question of whether crypto itself will survive. Ethereum might have loads of uses in the crypto space, but if the entire sector fizzles out, it could have trouble finding a place. While nobody knows whether it will really come to that, crypto is still speculative, and it's important to seriously consider whether you're comfortable with that risk before you buy.
Is Ethereum right for you?
Though the future might be uncertain, I'm still betting on Ethereum. Despite its drawbacks, it remains one of the biggest players in the field. It has a market cap of more than $209 billion, making up close to one-fifth of the entire crypto market.
It's also proven that it can survive periods of volatility. Throughout 2018, Ethereum's price fell by a staggering 94%. Yet it managed to rebound and become one of the fastest-growing blockchains in history. While past performance doesn't predict future returns, Ethereum has a longer history than many of today's other cryptocurrencies, and that can be reassuring to investors.
Ethereum Price data by YCharts.
On the other hand, if you're a risk-averse investor, Ethereum might not be the best fit. We are almost guaranteed to see more short-term volatility at some point, so it's crucial to keep a long-term outlook with this investment. If this volatility makes you nervous or you can't keep your money in the market for the next several years, you might be better off investing elsewhere.
Ethereum is a strong player in the crypto sector, but there are never any promises in investing. Carefully weigh its advantages and disadvantages to decide whether Ethereum is right for your portfolio.
