If 2022 taught investors anything, it's that the cryptocurrency market remains an incredibly volatile, complex beast. Major firms blew up, regulations might be coming, and investor thirst for speculation is still fully present. The market lost about two-thirds of its value last year, but there might be some bargains to take advantage of.
Amid the ongoing crypto winter, some of the most well-known digital assets are still down significantly. With a market cap of $233 billion, Ethereum (ETH +0.37%) is down an eye-watering 60% from its high, despite being up 59% so far in 2023 (as of April 10).
Is the world's second-most valuable cryptocurrency a screaming buy right now? Let's take a closer look at the bull and bear arguments for this top token.
CRYPTO: ETH
Key Data Points
Bull case: Ethereum has great potential
Ethereum was the first blockchain to enable the use of smart contracts, which are self-executable software programs that run when two parties satisfy their ends of a transaction. This innovation's promise is to disrupt a wide range of industries that depend on the use of middlemen. If certain functions can be automated, users can benefit with lower costs. Of course, this is the ultimate goal, and we are a long way from Ethereum taking over entire industries.
However, thanks to its functionality, Ethereum usually ranks among the top cryptos for developer activity, something that bodes well for its future utility. In the world of decentralized applications (dApps), Ethereum is a top blockchain network. And there are thousands of dApps running on it right now.
Most notably, decentralized finance and non-fungible tokens (NFTs) are promising growth areas that Ethereum can spearhead. In fact, whenever the crypto market rebounds, it's easy to see the activity on the Ethereum network rising as well. And higher demand should push the price of Ether up.
Another reason to like Ethereum is its thorough development process. Last year, the network underwent a major change called The Merge, which transitioned the consensus mechanism from a proof-of-work to a proof-of-stake (PoS).
A PoS system is far less energy intensive, something crypto enthusiasts cheer for. And it sets Ethereum up to scale better, with the plan to find ways to increase transaction speeds and lower fees in the future.
Bear case: Investors should know the risks
While Ethereum certainly possesses many positive attributes, investors need to be mindful of the risks. For starters, owning any cryptocurrency exposes one's portfolio to the possibility of extreme volatility.
To be fair, Ethereum is one of the more established networks out there, but even its price can swing wildly. Especially during a time like now, when market and economic uncertainty are sky-high, investors might do well by seeking safer assets instead.
Ethereum's PoS system and its smart-contract functionality are innovative, but there are smaller competing crypto networks trying to gain adoption quickly. For example, Solana and Cardano are two younger cryptocurrencies that each possess their own unique characteristics. Both are also attracting many developers onto their platforms.
Solana promises insanely fast transaction speeds, and Cardano has already found enterprise-ready use cases. Therefore, it wouldn't be a huge surprise to see these two cryptos rivaling Ethereum over the next several years.
The successful completion of The Merge was applauded by many in the crypto community, and for good reason. And it might very well prove to be a groundbreaking moment when we look back on Ethereum's history. But because Ethereum is controlled by a small group of developers, including its influential cofounder Vitalik Buterin, there's always the risk that the network's development plan and timeline can change and/or be extended at any time.
Investors have to ask at what point, if ever, will Ethereum be fully complete. That's always something to keep in mind.
Fully equipped with the pros and cons of owning Ether, investors can now hopefully make an informed decision that's best for their portfolios.
