It's hard to deny how wonderful an investment Ethereum (ETH -0.62%) has been. As of this writing, the token's price is up more than 52,000% since its public launch in July 2015.
That's an impressive gain, but it hasn't been a smooth ride for investors. Ethereum currently sits 68% off its all-time high price, set in November 2021.
Is it smart to buy this top cryptocurrency while it's still below $2,000? Let's look at the reasons both for and against this decision.
Buying the dip could be a smart move
The obvious reason to be a buyer right now is how beaten-down Ethereum's price is. During the huge bull run in 2021, crypto markets drew a lot of enthusiasm from the investment community looking for quick profits. Things certainly look to have been in bubble territory. In the years since, there has been a bit of a normalization, which might be a good thing.
Rapidly rising interest rates crushed the stock and crypto markets in 2022. And it introduced a prolonged market downturn in digital assets, even though Ethereum has climbed this year.
All else equal, investing in something when its price is lower is a better move. Should things still play out as hoped, the upside is greater than if you had bought at a higher price. This could be the situation with Ethereum right now.
Some investors are bullish on Ethereum for its game-changing potential, primarily in the world of decentralized applications (dApps). That this blockchain has capabilities to build smart contracts has caused many believers to see a lot of use cases developing over time.
While the activity around decentralized finance protocols and non-fungible tokens has cooled off, Ethereum remains the leader in these innovations. Thus, when the market rebounds, as it has done in the past, demand for the blockchain could soar once again with a growing dApp ecosystem.
Ethereum's transition to a proof-of-stake consensus mechanism 13 months ago might have won over a lot of people. This move reduced the network's energy usage by more than 99%, which will certainly go over well with climate activists. It paves the way for a more sustainable future.
Ethereum is too risky
There are also some clear reasons not to buy Ethereum -- despite its price being below $2,000 at the moment. Cryptocurrencies might simply be way too volatile for some investors. This issue is more of a concern for those who are near or in retirement. Owning Ethereum exposes the portfolio to wild valuation swings, which could be too hard to stomach.
Some naysayers might also argue that there isn't even a need for Ethereum. In other words, it's a solution looking for a problem to solve.
Take financial services, for example. DeFi promises to remove intermediaries, which might lead to better consumer pricing and rates. But as we've seen with the failures of major crypto firms, things are opaque and too complex to understand. For all its faults, the current financial system is adequate for most people, and that could eliminate the demand for DeFi services.
Ethereum faces regulatory uncertainty, too. Is it a security? If the Securities and Exchange Commission one day rules that it is, that means Ethereum will have to abide by comprehensive reporting requirements. And this could result in heightened public scrutiny of the crypto.
There's even a possibility that Ethereum won't get back to its all-time high ever. The euphoria that characterized the market in 2021 might be a one-hit wonder.
On one hand, I can see why some investors might be interested in starting a tiny position in Ethereum, primarily as a result of its potential. But I'm in the camp that says it's better to probably be a bit more critical and avoid the crypto altogether or await further developments.
