A few months ago, Ethereum (ETH -2.34%) was in rough shape. It had fallen below $1,600, its lowest price since 2023, and investors were wondering when it would stop the bleeding. But the second-largest cryptocurrency has made an impressive turnaround, growing by 57% in July and recently surpassing $4,300 (as of Aug. 10).
The question now is whether Ethereum has become overvalued or if it's still a good long-term investment. While cryptocurrencies are notoriously unpredictable, Ethereum's strengths line up well with where the market is going, and that could result in substantial growth over the next five years.
Ethereum could be crucial for crypto's mainstream adoption
There have been some major cryptocurrency developments so far this year. In July, the U.S. passed the Genius Act, the first significant piece of crypto legislation. It regulates stablecoins, which are crypto tokens designed to maintain the same value as another asset such as the U.S. dollar. Stablecoins have been growing rapidly, now with a total combined market value of about $270 billion. Some analysts, as well as Treasury Secretary Scott Bessent, predict that it could rise to $2 trillion by 2028.
We've also seen substantial growth in the tokenization of real-world assets (RWA). This refers to turning financial assets, such as stocks and bonds, into tokens on the blockchain. The total RWA value across all blockchains has increased by 63% to $26 billion on the year.
Stablecoins and RWA are potential avenues for increased crypto adoption, as they're areas where blockchain technology could merge with traditional financial systems. Crucially, Ethereum is a leader in both areas. Of the $270 billion in stablecoins in circulation, 51% are on the Ethereum blockchain. It's also the blockchain that JPMorgan Chase and PayPal have chosen for their own stablecoin projects.
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Ethereum also has $7.1 billion in RWA, the most of any blockchain (second place has $2.4 billion). The RWA tokenization sector is still very new and unproven, but it could be the next area of explosive growth for cryptocurrency. If so, Ethereum will likely be one of the coins that benefits the most.
Following in Bitcoin's footsteps
Bitcoin is up 177% since the start of 2024, in large part because of growing popularity with institutional investors and businesses. Bitcoin ETFs received SEC approval in January 2024 and have had cumulative inflows of nearly $55 billion. There has also been a rise in Bitcoin treasury companies that make investing in Bitcoin a business strategy, with Strategy leading the way. Strategy first purchased Bitcoin five years ago, and its share price has grown over 3,000% since then.
Ethereum is now starting to benefit from the same tailwinds. Ethereum ETFs had their best month yet in July, with record inflows of $5.4 billion (close to the $6 billion taken in by Bitcoin ETFs). There are now also Ethereum treasury companies, most notably Bitmine, which has set a goal of owning 5% of the total Ethereum supply. Since launching its Ethereum treasury strategy on June 30, Bitmine's stock is up 52%.
While Bitcoin is still the much more popular investment, Ethereum has a key advantage that could help it close the gap. Companies that buy Ethereum can stake their holdings and earn more ETH tokens as a reward, generally at a rate of about 3% or more per year. There's the opportunity to generate a return on Ethereum, which isn't possible with Bitcoin. Multiple fund managers have also filed to add staking to their Ethereum ETFs. If approved, that feature could bring in even more institutional capital.
Ethereum could triple in value by 2030
No crypto investment is perfect. Ethereum faces heavy competition from other blockchains, some of which offer faster, cheaper transactions. Ethereum is improving in this regard, as it has made several recent upgrades to its network, but it's still not the most efficient blockchain.
Despite that, I like how integral Ethereum is to stablecoins and RWA, and I think the increased institutional interest will help it keep growing. Over the last five years, Ethereum has grown over 1,000% from about $380 to $4,300. It probably won't replicate those gains, but based on its current growth, I could see it increasing by 180% and hitting $12,000 during the next five years.
Considering Ethereum's volatility, you shouldn't bet your whole financial future on it. But Ethereum is a crypto investment worth considering as one small part of a balanced portfolio.
