For much of 2024, Ethereum (ETH -0.24%) has disappointed crypto investors. Even with all the hype and buzz around the launch of the new spot exchange-traded funds (ETFs), the price of Ethereum is up a measly 15% for the year. By way of comparison, Bitcoin (CRYPTO: BTC) is up nearly 40% for the year. And don't even get me started about all the meme coins that are up 500% or more for the year.
But I think that Ethereum still has a tremendous amount of explosive upside potential. By the end of 2025, I fully expect Ethereum to triple in value and become a $1 trillion asset. That might sound like pie-in-the-sky thinking, but there are several very good reasons why it might just happen.
ETF inflows
Let's start with investor inflows into the new spot Ethereum ETFs. These ETFs started trading at the end of July, and even with the mini-crash that occurred in the crypto market at the start of August, they continue to bring in investor dollars. The two largest of the new spot Ethereum ETFs have already accumulated nearly $800 million in assets under management.
According to research firm K33 Research, that's just the tip of the iceberg. By the end of 2024, anywhere from $3.1 billion to $4.8 billion might flow into these spot Ethereum ETFs. That's solid buying pressure that is going to send the price of Ethereum higher over the short-to-medium term.
Ethereum's growth potential in DeFi
Granted, even with bullish investor inflows into the ETFs, it's unlikely that Ethereum would triple in value. And that's why you need to look deeper into the diversified blockchain ecosystem that Ethereum developers have created. The one area that has the attention of a lot of high-profile investors is decentralized finance (DeFi), where Ethereum is the clear market leader.
The easiest way to think about decentralized finance is that it is the crypto world's version of traditional finance. Basically, anything you can do with traditional finance, you can do with decentralized finance. And often, you can do it better, cheaper, or faster.
Image source: Getty Images.
In her "Big Ideas" report for 2024, Cathie Wood of Ark Invest explored how much value creation is happening right now with blockchain networks such as Ethereum, with particular focus on smart contracts. She fully expects hundreds of billions of dollars in value to flow from Wall Street to Ethereum by 2030, and that has the potential to send the price of Ethereum soaring.
Quite simply, the growth in DeFi has the potential to skyrocket off the charts. Investment firm VanEck, for example, is so excited about Ethereum's opportunity in decentralized finance that it has put out a $22,000 price target for Ethereum for 2030. And that's just the base-case scenario. The bull-case scenario is so outlandishly high ($154,000 per coin!) that I'm almost embarrassed to mention it here.
From this perspective, a tripling in value from Ethereum's current price of approximately $2,500 to $7,500 sounds a bit pedestrian. The last time there was this much buzz about DeFi (during the crypto bull market of 2020 to 2021), Ethereum absolutely skyrocketed in value. In August 2020, Ethereum was trading for $400. By May 2021, Ethereum was trading near $4,000 for a massive 10 times gain. So the potential for an explosive move to the upside is certainly there.
Will Ethereum finally deliver on its promise?
For several years, investors have been predicting that Ethereum could become a $1 trillion asset, but the world's second-most popular crypto has never delivered. So it's not like hitting a $1 trillion valuation by the end of 2025 is going to be easy. A lot obviously needs to go right, and there needs to be more mainstream acceptance and understanding of decentralized finance. Today, even basic DeFi concepts such as stablecoins often leave people scratching their heads.
When it comes to Ethereum, I'm constantly reminded of an influential essay ("Why Software is Eating the World") that venture capitalist Marc Andreessen published almost exactly 13 years ago. In that essay, he predicted that software companies would take over a large portion of the economy, leading to new business models and soaring valuations for Silicon Valley.
A similar phenomenon is happening now, and it involves blockchain instead of software. Yes, "blockchain is eating the world" now. Admittedly, that's a controversial investment thesis, but I think it helps to explain why a $1 trillion valuation for Ethereum is possible in 2025. If you think that "blockchain is eating the world" is the new "software is eating the world," then we might just be getting started with Ethereum.
