Some cryptocurrencies have surged in value in recent years, and one big winner has been Ethereum (ETH 1.19%), which is up an impressive 670% over the past five years compared to the S&P 500's 90% gains.
Cryptocurrency investors looking back at Ethereum's impressive rise may be wondering if the same returns will be replicated in the future. There are certainly some reasons to be bullish about the crypto, but as any investment disclaimer will tell you, past performance isn't an indicator of future gains.
Here's why Ethereum could continue to be a good investment, and why it's unlikely to be a millionaire-maker.
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Why Ethereum has significant momentum
One of the biggest draws for investing in Ethereum compared to other cryptocurrencies is that financial institutions use the Ethereum blockchain to build some of their financial technology on. For example, JPMorgan Chase, Microsoft, and Visa all use Ethereum's blockchain as part of their technology and financial services infrastructure.
That institutional backing gives the crypto a level of credibility that's made it popular among investors, helping it climb in value to become the world's second-most-valuable crypto after Bitcoin. That popularity helped boost Ethereum's value when the first Ethereum exchange-traded funds (ETFs) launched. Since they debuted, there's about $20 billion in assets under management in Ethereum ETFs.
What's more, while many cryptocurrencies are created as a joke or as a meme coin to promote some event or company temporarily, Ethereum is far more established. The cryptocurrency's blockchain has more than 16,000 developers -- the largest of any cryptocurrency. That makes it continually useful in real-world settings and far more likely to have staying power.
Why Ethereum probably isn't a millionaire maker
It's understandable why some people are looking to Ethereum to make them a millionaire. After all, a more than 600% increase in value in just five years has made some people a lot of money.
But there were some big catalysts for the crypto that led to those returns, which are unlikely to be repeated. For one, stocks and crypto prices surged during the pandemic as the government sent out stimulus checks, and some people used that money to invest.
CRYPTO: ETH
Key Data Points
Two separate catalysts in 2024 also pushed Ethereum and other cryptos higher: The launch of Ethereum ETFs and the election of Trump. I already mentioned how ETFs helped push Ethereum higher, and President Trump's reelection led to the federal government having a lighter touch on crypto regulation, which helped boost Ethereum's price, at least initially.
What's more, there are some current headwinds for the crypto market that could hold Ethereum back from producing high returns. For one, the labor market is slowing. Jobs data from private firms show that layoffs in October were the highest they've been in 22 years. When people are concerned about their jobs, they're less likely to invest in riskier assets like crypto.
If layoffs continue or the U.S. economy slows down significantly, investors will likely shift their attention to safer investments like bonds. So far, the economy still seems to be chugging along, but one only needs to look back to April, when President Trump announced sweeping tariffs, to see just how quickly crypto values can fall when investors get spooked. Ethereum plunged 20% in just over a week when tariffs were announced.
Ethereum could still be a good long-term investment
I think there's a case for owning some Ethereum, especially as more financial institutions adopt its blockchain. But it's unlikely the cryptocurrency will have the same gains it's seen over the past five years or mint millionaires, given the hurdles the crypto industry is facing right now.
