The last few months have been tough for cryptocurrency as the majority of cryptos have seen their prices plummet. After reaching a record high in mid-November, the price of Ethereum (ETH 0.70% ) had fallen by almost 50% at the end of January. While this volatility can be nerve-wracking for investors, it can also be a fantastic opportunity to “buy the dip” or invest when prices are at rock bottom.
Ethereum price has started to rebound, however, up nearly 30% from its low point last month. If the price of crypto climbs again, this could be a smart buying opportunity. Is it the right time to invest?
Is Ethereum a good investment?
Ethereum is one of the most important investments in the crypto space, mainly because it is the largest platform for decentralized applications (dApps), which includes everything from non-fungible token markets ( NFT) to decentralized finance (DeFi) applications and more. They could potentially revolutionize a variety of industries, from banking to finance to the collectibles market.
Because Ethereum is the biggest player in this space, it has an edge over other platforms that also host dApps, such as Solana and avalanche.
One area where Ethereum struggles, however, is its proof-of-work (PoW) mining protocol. This is the method it uses to verify transactions, and it’s incredibly power- and time-consuming. As a result, the network is slower than its competitors, with a speed of just 14 transactions per second, compared to Solana’s 65,000 transactions per second. It’s also more expensive, with much higher transaction fees.
That said, Ethereum is working on an update to move it to a proof-of-stake (PoS) protocol. Once this update is complete (which should be coming later this year or next year), it will be noticeably faster and more affordable. Indeed, Ethereum co-founder Vitalik Buterin announced that after its update, Ethereum should be able to process up to 100,000 transactions per second.
Should you invest now?
Ethereum has many promising developments in the works, and updating it could give it an even stronger edge over its competitors. However, it is important to keep in mind that like all cryptocurrencies, it is still speculative at this point.
Its most significant advantage is its dApp platform. For it to succeed, however, the general public will have to be willing to accept these types of applications. If NFT and DeFi turn out to be just a short-term fad, Ethereum could struggle.
It is impossible to say what the future holds for crypto. With projects like the Metaverse garnering attention (which could rely heavily on networks like Ethereum), there’s a chance cryptocurrency is here to stay. But no one knows for sure, so crypto is still a high-risk investment right now.
If you choose to invest in Ethereum, be sure to only invest an amount that you can afford to lose. Also, as crypto will most likely see more volatility in the months and years to come, be prepared for more ups and downs. If you are willing to take higher risks, Ethereum could be a promising long-term investment.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.