So far, it’s been been a standout year for Ethereum (CCC:ETH-USD). Since Jan. 1, it has logged an impressive gain of around 135% to $1,730. To put things into perspective, Ethereum was only $223 a year ago.

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Keep in mind that there are over 2,000 cryptocurrencies, and many of them are marginal. But there are a handful that have staying power, and Ethereum is one of them. It is actually ranked No. 2, with Bitcoin (CCC:BTC-USD) being at the top. At present, the market capitalization is roughly $198 billion.

The past year has been a watershed for cryptocurrencies. There are growing concerns about the global fiscal and monetary system because of the actions taken to deal with the Covid-19 pandemic. That is, there may be a reemergence of inflation. But a cryptocurrency could act as a safe haven, since there is a limited supply of digital assets.

Next, companies like Square (NYSE:SQ) and PayPal (NASDAQ:PYPL) have made it much easier to make transactions and investments.  Oh and yes, Elon Musk’s Tesla (NASDAQ:TSLA) has provided a boost for the category, with the purchase of $1.5 billion in Bitcoin, as well as announcing it will accept the crypto for customer purchases.

Now, as for Ethereum, what makes it unique? And what might we expect in terms of the investment potential? Well, let’s take a look:

The Pros

The origins of Ethereum go back to 2015, when Vitalik Buterin and Yoni Assia wanted to create a system to allow for decentralized applications. They wanted to go beyond the monetary use-case of Bitcoin and make a coding system.

Financial backers were needed to commercialize Ethereum. So Buterin and Assia got the support of Gavin Wood, Charles Hoskinson, and Anthony Di Iorio.

Over the years, there has been significant innovation in regards to Ethereum. Here are just some of the cryptocurrency’s advantages:

  • Anyone can use Ethereum for banking services, such as for savings, borrowings, and lending.
  • There is a high level of privacy since you do not have to provide many personal details when using an Ethereum app.
  • You do not have to go through an intermediary to make a transaction.
  • Compatibility is built into the platform. This has allowed for a rich ecosystem of applications.
  • Transaction fees are minimal.

However, one of the key reasons for the widespread interest in Ethereum is that it is a viable alternative to Bitcoin. Let’s face it, investors do not want to put everything in one basket. Besides, in light of the growing interest in cryptocurrencies, there are plenty of investors looking for the next breakout digital asset.

Something else to consider: Ethereum is in the process of a major upgrade. The focus has been on improving the blockchain network, in terms of efficiencies and scale. This will definitely be another positive for adoption.

But perhaps the biggest driver is the trading of Ethereum futures on the CME, which commenced this week. This will create much more liquidity and enhance visibility for the cryptocurrency. For the most part, institutions will have a much easier way of getting exposure.

Yet this is not to imply that there will be a bullish move. The reverse may be true. This is because investors will have the ability to hedge their positions, which could put downward pressure on Ethereum – at least in the short run.

Bottom Line On Ethereum

The markets are certainly frothy right now. Just look at the Reddit investor phenomenon, which has seen explosive volatility in companies like GameStop (NYSE:GME) and AMC (NYSE:AMC). Much of the activity has not been due to fundamentals but instead to technical factors, like short squeezes.

But such moves can easily lose momentum. And this could happen to Ethereum as well. While it is a promising cryptocurrency and is likely to be one of the best-of-breed, things may be overextended right now. So it could be a good idea to hold off and wait for a better price.

On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence BasicsHigh-Profit IPO Strategies and All About Short Selling.  He is also the author of courses on topics like the Python language and COBOL

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