The cryptocurrency market has made a comeback in a big way since the start of the year. Its market value has even topped the $1.25 trillion mark after starting the year at about $800 billion. Investors last year fled the market in favor of safer assets. But the tide is starting to turn.
Does this mean it's too late to get in on crypto's most innovative players? Not necessarily. In fact, in spite of this rebound, many cryptocurrencies still seem reasonably priced considering their long-term prospects. Ethereum (ETH -5.46%) is one of them. And Ethereum has even pulled back a bit in recent days. Should you buy now? Let's find out.
A leader in dApps and NFTs
First a bit of background. Ethereum is the world's second-biggest cryptocurrency -- it's got its own native token and is a blockchain hosting thousands of decentralized applications (dApps). It's the leader in the worlds of dApps and non-fungible tokens (NFTs). This is key because it suggests the company could play a major role in the transformation of business -- and even entertainment -- down the road.
Another significant point is Ethereum is a giant when it comes to attracting developers to build on the blockchain. As of April 1, more than 5,800 monthly active developers were using the platform, according to an Electric Capital report. That's compared to about 1,900 for its closest rival, Polkadot. This, too, indicates Ethereum could be a leader in the cryptocurrency world of tomorrow.
Of course, Ethereum isn't perfect. Users have complained of its intensive energy use, slow transaction speed, and high costs. But Ethereum is making updates to address these problems. It's already cut energy use by 99% with the switch to the proof-of-stake method of verifying transactions. This eliminated the extreme computer power needed to validate blocks of data.
Now, Ethereum is taking steps to improve speed and cut costs. Today, it's using rollups, which gather transactions together in a batch off the mainnet and execute them. Rollups today are 3 to 8 times less expensive than transactions directly on Ethereum.
But progress is far from over. Ethereum continues to work on the efficiency of rollups with the goal of reaching transaction costs of less than $0.001. Ethereum's development here will be progressive, but it does aim to launch an upgrade later this year that should cut data storage costs -- these account for about 90% of overall transaction costs.
Staking Ethereum
Ethereum's switch to proof of stake offers users another big plus. You now can stake your Ethereum holdings to earn passive income. This could attract a whole new category of investors -- those who like to collect recurrent payments, such as dividends, from their investments.
Now, let's get back to the question at hand: Should you buy Ethereum on the dip? This depends on your comfort with risk. If you are a highly cautious investor, cryptocurrency in general may not be the right fit for you. It's a newish industry so it's impossible to predict with certainty what it will look like five or 10 years from now.
But if you can handle a bit of risk, Ethereum makes a solid crypto buy. It's already demonstrated its capabilities and has attracted users -- so you can be confident that if cryptocurrency in general takes off, Ethereum has a strong chance of leading the pack.
Ethereum also is solving its biggest problems now. And that means it should be an even better player down the road.
As for the price, Ethereum has lost quite a bit from its 2021 peak. Today, Ethereum trades for less than $2,000, while back then it topped $4,500. Momentum has returned, though, with the crypto advancing 55% since the start of the year.
Though Ethereum has taken a pause, losing about 10% over the past five days, the positive movement could continue. But whether it does or doesn't in the short term, Ethereum still represents a solid long-term bet considering the points I mentioned above. And that's why it's a great idea to get in now, on the dip.
