Despite being up nearly 50% for the year, Ethereum (ETH -0.83%) seems to have fallen out of favor with investors. While other cryptos have been soaring in value of late, Ethereum has not. Currently trading at just under $1,800, Ethereum has repeatedly failed to surge past the $2,000 price mark this year and is now significantly underperforming Bitcoin (BTC -2.24%).
All of which makes Ethereum an intriguing investment right now. It's still the second-largest digital asset in the world (trailing only Bitcoin), and there are at least two good reasons Ethereum's price could start to move upward as we head into 2024.
The clear market leader
First and foremost, Ethereum is still the 800-pound gorilla of the blockchain world. Ever since it pioneered the concept of smart contracts back in 2015, Ethereum has consistently been the first to market with just about every new blockchain innovation. And that has given Ethereum an enviable first-mover advantage in key areas such as non-fungible tokens (NFTs) and decentralized finance (DeFi).
In both areas, Ethereum is still the clear leader. For example, Ethereum is responsible for an eye-popping 54% of total value locked (TVL), arguably the single-best metric for measuring overall DeFi strength. No other blockchain even comes close.
Image source: Getty Images.
Until rival blockchains, such as Solana or Avalanche, begin to chip away at Ethereum's market dominance at a faster pace, it's safe to say Ethereum will remain entrenched as the premier Layer 1 blockchain in the world. And that's exactly what I'm looking for in a long-term investment prospect: a clear market leader with an established track record of excellence.
Continuous cycle of improvement
Ethereum's success to date has not been an accident. Ethereum boasts the largest developer network in the world, and these developers are highly focused on maintaining Ethereum's market-leading position. Case in point: Last year, Ethereum pulled off The Merge, one of the most difficult and complex technical achievements ever in the blockchain world. Some compared its difficulty to that of changing the engine of an airplane while mid-flight.
What makes Ethereum particularly enticing to long-term investors is that it has a very detailed roadmap for future development. Even after The Merge, Ethereum has plans for new technical changes to its blockchain to boost performance, lower fees, and improve overall scalability. The next major upgrade (known as Dencun) is now tentatively scheduled for the first quarter of 2024 and has already received plaudits from Wall Street giant Goldman Sachs.
Why has Ethereum fallen out of favor?
So the obvious question becomes, "If Ethereum is so great, why has it fallen out of favor with investors?" While there are several possible explanations, the most likely is that The Merge may have over-promised and under-delivered. There was so much buzz and speculation surrounding The Merge that it couldn't possibly live up to the hype.
Investors woke up the next day to find that nothing really seemed to have changed with the Ethereum blockchain. Transaction processing times were faster but only marginally so. Transaction fees were still high, and there were still pressing questions about the future of staking on the blockchain (something Ethereum fixed in April). On top of all that, Ethereum founder Vitalik Buterin himself acknowledged that a lot of work still had to be done. So, The Merge wasn't some kind of magic rocket fuel that was going to send Ethereum soaring. That lack of immediate sizzle certainly disappointed a lot of investors.
Add in that many of the blockchain sectors that initially generated a lot of buzz for Ethereum -- such as NFTs and the metaverse -- fell out of favor with users, developers, and investors in 2022. And don't forget, the unprecedented rise of ChatGPT out of seemingly nowhere late last year led to a tremendous swing in investor sentiment. Suddenly, generative artificial intelligence (AI) became the talk of the investment world, and Ethereum admittedly didn't have much to offer in this regard.
Invest in Ethereum for the long haul?
From my perspective, Ethereum remains a great long-term investment play. Right now, investor sentiment seems to be at a low point, but that could change soon. Buying Ethereum now, while it's still below $2,000, seems like a fantastic bargain. You're getting a proven market leader at a discount price, combined with a potential catalyst (the new Dencun tech upgrade) to start off the New Year with a bang.
