Ark Invest's Cathie Wood is known for her focus on disruptive innovation, which encompasses everything from cryptocurrency to artificial intelligence (AI) and robotics. She first bought Bitcoin (BTC +0.33%) in 2015 and has been an active proponent of many blockchain-related investments for years.

One of those is Ethereum (ETH 0.52%). Back in 2022, Wood predicted the market cap of the second-most-popular crypto would rise to $20 trillion by 2032. Ark has since revised its figures downward, but Ethereum still has a lot of room to grow. Let's dive into the numbers and why the innovative investment firm sees serious potential in Ethereum.

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How Ethereum could soar 625%

Lorenzo Valente, Ark Invest's digital assets director of research, recently said the firm estimates the crypto market will total $25 trillion by 2030. He explained that Ethereum makes up about 12% of the total crypto market cap right now.

If Ethereum holds on to the same share, we can extrapolate that its market cap might surge from $480 billion today (Oct. 11) to about $3 trillion in five years' time. That's an increase of 625%.

There are about 120 million coins in circulation today. Ethereum has a burn mechanism, so the number of tokens in circulation will likely decrease. But for the sake of our calculations, let's assume it stays the same. On that basis, Ethereum's price could reach about $24,000 by 2030 -- more if there are fewer tokens.

Ethereum is a major crypto engine

There are some big shifts toward mainstream blockchain adoption taking place right now, and Ethereum -- as the first and biggest smart-contract cryptocurrency -- is a key part in many of them. Smart contracts are pieces of blockchain code that make it programmable. Without them, we wouldn't have things like decentralized finance (DeFi), stablecoins, and other types of tokenization.

You're likely already familiar with DeFi, which offers low-cost ways to trade, borrow, and lend without using banks or financial institutions as intermediaries. Then there's tokenization, which is a way to record ownership of all kinds of real-world assets (RWA) on the blockchain. Stablecoins are one example of tokenization, but it goes further than that. We're now seeing increased interest in tokenized stocks, real estate, bonds, and more.

Here's how much Ethereum dominates each of these three areas:

• DeFi: Ethereum accounts for $93 billion (56%) of the total $166 billion in funds locked up in different ecosystems, per DefiLlama.
• Stablecoins: About $173 billion (59%) of a total $294 billion of the stablecoins in circulation were issued on Ethereum, per rwa.xyz.
• Real-world asset tokenization: Ethereum hosts almost $12 billion (56%) of the total $21 billion in RWA, per rwa.xyz.

When it comes to smart contracts, Ethereum is still No. 1. It has lost ground to newer, faster projects during the past few years, but it is still a behemoth. Because of slowness and high transactions fees on Ethereum's blockchain, various Layer-2 blockchains sit on top of it to improve speed, costs, and scalability. Layer 2s combine the core security of Ethereum with the agility of newer chains.

The Ark team highlighted two other aspects of Ethereum that bode well for its growth potential. One is that there's an active team working to upgrade and improve both the main Ethereum blockchain and the Layer 2s that work with it. The other is that Ethereum can be staked. You can tie up your Ethereum to contribute to network security and earn an interest-like yield.

Ethereum's path to ​​$24,000

Cryptocurrency is a relatively new asset class and it's difficult to predict where we might be in five years time. However, given that Ethereum has surged almost 920% during the past five years and continues to account for a lion's share of the DeFi market, it isn't inconceivable to think it can grow by a similar amount by 2030.

Several things could throw a wrench in the works. Big institutions may build their own blockchains rather than relying on existing decentralized solutions. Other cryptocurrencies or technologies may also overtake Ethereum. And tokenization may not take off in the way organizations like Ark predict -- particularly not if regulation slows its progress.

Cryptocurrencies are certainly having a moment. But they are still risky and there are no guarantees. Think about how much of your portfolio you're comfortable allocating to risky assets and what part you want them to play in a wider, diversified portfolio.