While many cryptocurrencies have produced eye-popping total returns over the past five years, the asset class has tendency to make huge moves up and down.
Bitcoin (BTC 1.77%), for example, has climbed nearly 600% since the start of 2023, but that's come with sudden price spikes followed by eventual drawdowns. The asset lost more than 20% of its value three times in the past two years.
While Bitcoin typically sets the pace for the entire cryptocurrency asset class, another big coin has dramatically outperformed since the calendar flipped to July. In fact, it's doubled since July 1, as of Aug. 22. When a cryptocurrency climbs that high that fast, many investors fear they've missed the boat. But the truth is it's probably not too late to invest.
Here's why investors should consider adding Ethereum (ETH 2.89%) to their portfolio.
Image source: Getty Images.
What's fueling the rocket ship right now?
Ethereum has received several pieces of good news over the past couple of months.
- The GENIUS Act became law, clarifying regulations on Ethereum and stablecoins.
- Spot Ethereum ETFs received regulatory approval and began trading on U.S. exchanges.
- Several companies announced strategic Ethereum treasuries, similar to Strategy's Bitcoin treasury.
- SEC Chairman Paul Atkins announced "Project Crypto," aiming to provide more and more friendly regulations that encourage owning and investing in cryptocurrency, while providing a framework for using blockchain in the financial markets.
- President Trump signed an executive order opening up 401(k) plans to cryptocurrencies.
- Lower-than-expected inflation, and promising comments from Federal Reserve Chairman Jerome Powell, suggest that an interest rate cut in September is very likely.
The combination of all of those factors and the continued push toward risk assets for investors have driven Ethereum to close to its all-time high from November 2021. And while it's been a long road back to that level, there's reason to expect the impact of some of these factors leaves a lot of room for Ethereum to keep climbing.
CRYPTO: ETH
Key Data Points
It's still early
Despite launching over 10 years ago, it's still early for Ethereum. The network is still evolving, with ongoing upgrades to improve speed and efficiency. While its blockchain is the most widely adopted for smart contracts and decentralized finance, it's still not a mainstream technology. And institutional and corporate adoption of the cryptocurrency as an investment remains behind Bitcoin, which many see as still underallocated.
The price of cryptocurrency is based on supply and demand. All of the aforementioned trends point to growth in demand that should outpace the growth in supply for a long time.
Ethereum ETFs have seen just $12 billion of net inflows since July and now hold roughly $22 billion in assets. While that's impressive, it's just 15% of the amount held by Bitcoin ETFs. Considering Ethereum's market cap is 25% of Bitcoin's, that implies we should continue to see strong demand for the new ETFs, driving billions in demand for the currency.
Likewise, only a handful of companies have announced corporate treasuries using Ethereum. And those that have remain relatively small. If a larger company joins them, it could provide a lot more demand.
Most importantly, though, is Ethereum's blockchain is the biggest and best-known public blockchain. The growing trend toward stablecoins and tokenizing assets, including stocks, bodes well for the future of Ethereum. That can provide prolonged growth in demand for Ethereum, driving the price of the coin to new all-time highs.
There's a lot of growth left for Ethereum, even after doubling in less than two months.
