Introduction
Ethereum (ETH), widely considered to be the home of decentralized finance (DeFi), decentralized applications (DApps), and Non-fungible tokens (NFTs) has endured a rough start to the year.Last year, ETH clinched highs of nearly $5,000 with several analysts making bold calls for the asset to touch 10,000 within the next 12 months.
As 2022 rolled by, the predictions fell apart.ETH fell by 70% from its all-time high to reach $896.11, leaving investors in doubt over the future of the asset.Their uncertainties have been amplified by the broader events in the markets like the collapse of crypto lending firms and Terra’s implosion.
It’s not all doom and gloom for Ethereum at the moment as optimists are anticipating epoch-making developments for the network.Ethereum is nearing a transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS) that could send the asset prices to the moon.For investors, the situation remains dicey because the numbers around the network are unimpressive.
This article will seek to answer the question of whether or not Ethereum is a good investment for investors in 2022.Let’s get started right away by understanding Ethereum.
What is Ethereum?
Ethereum is an open-source blockchain with smart contract functionality.
The network was the brainchild of Vitalik Buterin and included other founders like Dr.Gavin Wood, Charles Hoskinson, and Joseph Lubin amongst others.
The functionality of smart contracts set it apart from Bitcoin and other early blockchains.This functionality attracted a wide range of DApps and DeFi projects to Ethereum that changed the game for the financial industry.For the first time, individuals could access financial services such as lending and borrowing without the need of a third party as DeFi projects made Ethereum their de facto home.NFTs took advantage of the robust infrastructure provided by Ethereum to thrive.
These features played a role in Ethereum rising to become the second-largest blockchain network less than two years after its launch in 2015.
The network split through a hard fork following the hack of The DAO, a decentralized venture fund leading to the birth of Ethereum Classic.
The limitations of Ethereum have led to several developments of several layer-two (L2) blockchains on the network.These L2 solutions are geared toward solving the problem of scalability, speed, and transaction costs and include Polygon, UniSwap, Arbitrum, and Optimism.
The current state of Ethereum
Ethereum reached its all-time high of $4,891 in November 2021 but six months later it had lost nearly 80% of its value.ETH saw an 18-month low of $896.11 that sent fear in the hearts of investors.
Although ETH recovered and currently trades at $1,223, sentiments are still bearish for the asset.
Ethereum’s market dominance fell from 20% to 15.61% while Bitcoin extended its market share to 44%.
Several reasons can be pointed out for Ethereum’s decline from an investor’s point of view.First of all, the general macroeconomic factors such as rising inflation and the Fed’s decision to raise interest rates have seen both institutional and retail investors tread cautiously.TerraUSD’s (UST) infamous depegging from the US dollar exacerbated matters leading to the implosion of several crypto lending firms like Celcius, Voyager, and Three Arrows Capital.Over $1 trillion was liquidated and Ethereum was a casualty as Ethereum’s market capitalization fell from $400 billion to $134 billion.
Another factor militating against Ethereum’s price is the rise of ETH-Killers – new blockchains designed to have improved performance and scalability over the blockchain.The rise of Cardano (ADA), Solana (SOL), Polkadot (DOT), and Avalanche (AAVE) have eaten into Ethereum’s dominance.
These blockchains have snagged some of Ethereum’s share of DeFi, DApps, and NFTs by offering faster speeds and lower transaction costs to developers.
Ethereum’s price has also taken a hit because of soaring gas prices.On May 1, gas prices reached a peak of $196 sparking criticisms from the network’s users.Zhu Su, founder of Three Arrows Capital revealed that he had “abandoned Ethereum despite supporting it in the past”.The hike in gas prices for Ethereum played a major role in the migration of several projects to the ETH-Killer blockchains that have adversely affected Ethereum’s prices.
The bright future
ETH has a number of things that could positively affect the asset’s price.
In terms of fundamentals.
The network’s proposed switch to the Proof-of-Stake consensus mechanism has been predicted to introduce an array of benefits for the network.Apart from being energy-efficient, the switch has been touted to improve security, and scalability and offer a solution to rising gas fees.
Analysts believe that the switch to PoS has not yet been priced and it might be a good time to buy the asset on that note.According to data from StakingRewards, ETH 2.0 is already the most staked crypto-asset ahead of the transition with $15.85 billion worth of tokens staked.
SOL and ADA follow closely at $14.88 billion and $11.58 billion respectively.
Institutional investors that have been divesting billions off the network might be lured back because of ETH 2.0.As the Merge approaches, a portion of investors are buying the dip with the hopes that the transition to PoS would spell a massive rally for the asset’s price.
On the technical side of things, things are not looking good for Ethereum.The asset is trading below its 21, 50, and 100-day moving averages which the experts are interpreting as signs of a further downtrend.CoinCodex predicts that ETH could slump all the way to $700 in the short term.
According to GovCapital, while the technicals are bleak, zooming out paints a bullish picture.
The predictor notes that ETH could reclaim the highs of 2,000 before the end of the year and clinch $3,819 by 2023.The website’s algorithm suggests that ETH’s rally could see the asset reach a record high of $11,000 by 2025.DigitalCoin’s prediction for the future of Ethereum was not as bullish as GovCapital’s as it pegged the ETH to be trading at a conservative $5,000 in 2030 “based on historical data.”
Ultimately, while the general outlook looks bullish in the long-term, investors should brace for lower prices as the crypto markets go through the throes of the crypto winter.
The extent of the future rally lies ultimately in Ethereum’s hand.The successful transition to proof-of-stake and fixing the problem of skyrocketing gas fees would do a ton of good for ETH’s price.
CoinStats
For Ethereum investors looking to take their trading to the next level, a crypto portfolio manager is a must-have.CoinStats offers investors a way to track the performance of their assets across multiple exchanges and wallets from one intuitive dashboard.
CoinStats supports over 400 exchanges and uses state-of-the-art security protocols to secure user data.The portfolio tracker allows users to set price alerts and offer advanced customization options to suit the personal preferences of investors.Getting started with CoinStats is super easy and requires users to merely copy the API from their exchanges to their CoinStats accounts.
Conclusion
Ethereum faces one of the darkest days of its history following unimpressive price metrics.
Yet, there is a chance for the asset to turn things around but before a rally occurs, prices could even sink lower for the asset.
The switch to PoS would herald the return of institutional investors to the network, making it a good investment at the moment as the move is yet to be priced in.However, a botched transition could be disastrous as rival blockchains continue to close the gap between them and the blockchain.
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