Currently trading at a price of around $1,900, Ethereum (ETH 3.19%) is looking for its next big catalyst. While Ethereum is up by more than 60% year to date, it's still down significantly from the all-time high of $4,891.70 that it hit nearly two years ago. So it has plenty of potential upside.
That next big catalyst could be a blockchain upgrade that's tentatively scheduled to take place before the end of the year. In mid-2022, The Merge galvanized investors, and the crypto at one point rose 85% from the end of June to mid-August just before the upgrade took place in September. (The gain, of course, didn't last amid the brutal crypto winter.)
Could this pending upgrade have a similarly positive impact?
Not all tech upgrades are created equal
At the outset, it's important to differentiate between transformational upgrades and incremental upgrades. The Merge, which turned Ethereum from a proof-of-work blockchain into a proof-of-stake blockchain, was monumental. That helps to explain why there was so much investor excitement about The Merge.
Image source: Getty Images.
The coming upgrade, known as Dencun (a mashup of "Cancun" and "Deneb"), will be more incremental. It has two goals: to reduce transaction fees on the Ethereum blockchain and to increase the network's throughput. In short, it will help Ethereum to run faster and cheaper, and that's certainly worthwhile. But is it really a big deal?
The answer will depend on how much of an impact Dencun has on blockchain performance. Right now, Ethereum's transaction fees (known as "gas fees") can become exorbitant during peak periods of demand. Thus, any change that brings down these fees significantly is certainly important. Moreover, Dencun is the next big step on Ethereum's path to becoming able to handle 100,000 transactions per second. That's a huge number. To put it into context, the Visa (V +0.61%) credit card network can handle about 65,000 transactions per second.
The big picture
The really exciting part, if you're a long-term crypto investor, is how the new upgrade fits into the bigger picture. Ethereum has planned a series of improvements as part of its long-term plan to ensure it remains a best-in-class blockchain. In November, Ethereum co-founder Vitalik Buterin released an updated roadmap for development, and Dencun is part of stage one of a five-stage process.
To put it another way, Ethereum is not resting on its laurels after The Merge. After this stage, which is known as The Surge, there will be The Scourge, The Verge, The Purge, and The Splurge. Even if each of these developmental stages lasts for only six months or so, that's still a solid two to three years more of regular improvements being made to the blockchain.
Should you buy Ethereum?
On its own, Dencun might not be enough to make Ethereum soar. It's just an incremental change to help the blockchain run faster and smoother. Yes, it will improve scalability and efficiency, and it will introduce a new transaction type, but it's not a transformational change like The Merge.
However, if you consider this tech upgrade as one step in a long-term process designed to make Ethereum a best-in-class blockchain, then it's an exciting story. Some crypto traders have even suggested that Ethereum could more than double in value to the $5,000 price level as a result of this upgrade.
CRYPTO: ETH
Key Data Points
Personally, I think that's expecting too much from this upgrade since the all-time high for Ethereum is just under $5,000, and that was during the peak of a huge bull market for risky assets like cryptocurrencies. But as more details about Dencun get released, and as more people understand how it could put Ethereum on the path to 100,000 transactions per second, then it's not out of the realm of possibility that the token will experience an extended rally heading into 2024. For that reason, I'm bullish on Ethereum's prospects.
