Should you buy Ethereum? Is ETH a good investment?

Should you buy Ethereum?

This is something that you will have to decide for yourself once you have read all the available information on Ethereum. This guide will discuss whether or not Ethereum is a good investment later on, but it is also very important to do your own research.

Ethereum is a pioneer in the blockchain space as it introduced smart contracts. These are bits of code that self-execute when pre-agreed conditions are met. Ethereum’s smart contract functionality makes the blockchain programmable.

This has resulted in many thousands of tokens and applications being built on top of Ethereum, driving the growth of popular new blockchain industries, such as Web 3.0, decentralized finance (DeFi), metaverse gaming, and non-fungible tokens (NFTs).

When deciding whether to buy ETH, you will also want to take into account your personal finances, goals, and experience. Other things to consider include the timing and amount of any potential purchase, both of which we will look at in more detail later.

Is Ethereum a good investment?

When it comes to investing your own money, only you can decide whether or not Ethereum is worth it. To help you make that decision, this section will go through some key aspects that affect ETH’s value.

When deciding whether to invest in any asset, you should think about what gives it fundamental value. As already mentioned, Ethereum brought major innovation to the blockchain space by pioneering smart contracts, and it is now the foundation of various lucrative emerging blockchain industries.

The project was also developed by a strong team with experience in a range of successful tech and blockchain projects, including Microsoft, Polkadot, Cardano, and ConseSys. The development team is pretty active, and Ethereum has seen many upgrades that have made it more efficient, scalable, and secure.

Ethereum’s upgrade to Proof of Stake made the blockchain much more sustainable and could create more demand for ETH from those wanting to stake. A fee-burning mechanism was also introduced to the network as part of an upgrade. This could lower the total supply of ETH and therefore put upward pressure on the token’s price.

Reasons to invest in Ethereum

Strong price potential

ETH has gone from being worth under a dollar to being worth thousands of dollars. This kind of return on investment is far higher than that possible for investors in traditional financial assets.

Long-term ETH investors have seen an astronomical increase in price. But the volatility of ETH means that even shorter-term investors could be well rewarded. For example, at the end of April 2021, the value of ETH more than doubled in the space of just two and a half weeks.

The upgrades discussed above are very positive for the token economics of Ethereum. What’s more, the ongoing development of DeFi, NFTs, and the rest of the Ethereum ecosystem could create a much stronger demand for ETH in the future and drive up its price.

Low barriers to entry

To start trading traditional financial markets, you may find that you need to make a substantial initial deposit and get familiar with technical terms and a complicated brokerage platform. You will also only be able to trade within certain hours of the day, and you may need a lot of money to buy assets with a high price per unit.

The barriers are far lower when investing in Ethereum as the crypto market is open for trading at all hours, and you can buy as little ETH as you like as it is fractional. Many crypto platforms have a low minimum deposit, and they are often easy to use, with some being designed to be accessible for people who have never invested before.

If you decide to use a DeFi platform to buy and use ETH, you don’t even need to be a part of the legacy financial system. As DeFi is decentralized, users don’t need to prove their identity or even have access to a bank account.

The rise of DeFi

The sector of decentralized finance has boomed in popularity recently, providing a way for people to trade, lend, earn yield, and much more, all on the blockchain, without expensive intermediaries or censorship from authorities.

The DeFi ecosystem is, for the most part, built on Ethereum. ETH itself can be used on many DeFi platforms for a range of financial activities, such as trading, providing liquidity, staking, and lending. Furthermore, ETH is required to pay gas fees for every transaction made on an Ethereum-based DeFi application.

Tens of billions of dollars worth of value are already locked into Ethereum’s DeFi ecosystem. As more financial services are built on the blockchain, and more people turn to DeFi in the future, demand for ETH could increase significantly, making it more valuable.

Access to NFTs

One of the most popular blockchain innovations other than DeFi has been non-fungible tokens. They can represent all kinds of things, like art, music, collectable cards, real estate, and gaming items.

The vast majority of NFTs are Ethereum-based tokens, meaning that you will need ETH to pay gas fees for creating them or transferring them to another wallet. ETH is also the most commonly used currency for buying and selling NFTs on NFT marketplaces.

Tokenizing assets makes them much easier to trade and can reduce the risk of fraud. If the popularity of NFTs continues to rise in the future, the demand for ETH could also rise and push up its price.

Staking

As already mentioned, upgrades to Ethereum saw the blockchain transition from a Proof of Work system secured by mining to a much more efficient Proof of Stake system secured through staking.

To become a validator, you need to stake 32 ETH, but anyone can stake less and earn some staking rewards by joining a staking pool. This process is made very simple on some platforms such as Binance , where you can stake your ETH and start earning rewards at the click of a button.

The introduction of staking could create more demand for ETH from validators and others wanting to earn staking rewards, while simultaneously reducing the supply of ETH on the open market as more ETH is locked up in staking contracts. This could be a very positive combination for the price of ETH.

Reasons not to invest in Ethereum

Volatility

The cryptocurrency market is much more volatile than the stock market. You will need to have a high tolerance for risk to invest in Ethereum, as its price can suddenly surge or crash dramatically in a very short space of time.

These price swings can be unnerving for new investors and potentially cause anxiety, especially if you monitor the value of your investment closely, as you could see significant unrealized losses very quickly. After ETH’s all-time high, for example, it lost more than half of its value within two and a half months.

If you have decided to invest for the long term, it might be better not to constantly monitor the market and get anxious over short-term fluctuations. However, you should study ETH’s price history before making an investment so that you know what kind of volatility to expect.

Risk of loss

When you invest in any cryptocurrency, there are a number of ways in which you could lose it. As regulations are still evolving, there are many unregulated platforms that could put your ETH at risk due to poor security.

There are also many criminals in the crypto space that could attempt to steal your coins, such as by trying to hack into your wallet or platform. Alternatively, they could use deceptive methods like phishing emails to try and get you to share your password or private key willingly.

It is best to keep your ETH somewhere secure, like a Trezor or Ledger hardware wallet, but make sure to back up your private key and seed phrase somewhere safe, as you won’t be able to access your wallet if you lose them.

Finally, be very careful when transferring your ETH between wallets. If you enter the wrong wallet address or send it using the wrong network, your coins could be lost forever.

Competition

Ethereum may be the first smart contract blockchain platform, but it is no longer the only one. Many other programmable blockchains have since been launched, and they are sometimes dubbed “Ethereum killers” as they could provide serious competition for Ethereum.

Ethereum transitioned to Proof of Stake over the course of a long series of upgrades, but many newer smart contract blockchains were created as Proof of Stake in the first place. Although the efficiency of Ethereum is improving, a number of its competitors are already much cheaper, faster, and scalable.

There is a possibility that competitors such as Cardano, Solana, and Polkadot could overtake Ethereum in the future if developers and app users decide to move to a more efficient blockchain. For this reason, some Ethereum investors choose to also invest in one or more of its competitors as a hedge against any potential issues with Ethereum.

What to know before buying Ethereum

Gas fees

Every time you perform any kind of operation on the Ethereum blockchain, such as transferring tokens or using an app, there will be a fee known as “gas” for processing your transaction, which needs to be paid in ETH.

When using a centralized crypto platform, you won’t need to worry about gas when buying and selling, as you will be charged a trading fee instead. However, when transferring ETH or ERC-20 tokens, or using a blockchain application, you will need to ensure you have a little bit of extra ETH in your wallet to cover gas costs.

Gas fees have been notorious for being volatile and often very expensive when the Ethereum network is congested. Ethereum upgrades should ultimately solve these issues, but in the meantime, you may find it uneconomical to transfer small amounts during busy periods.

Storage

Before you buy ETH, you may want to think about where you are going to store it. The most convenient option for traders and small-scale investors is to use the free web wallet provided by your platform. However, these wallets can also be the least secure, which is why it is important to select a regulated platform that meets the highest standards of security.

The most secure albeit expensive option is a hardware wallet like Trezor or Ledger, which are ideal for investors holding a large amount for the long term. Desktop and mobile wallets fall somewhere between web and hardware wallets when it comes to convenience and security. Bear in mind that if you use private wallets, you will need to pay gas fees.

Diversification

Investing in just one asset leaves you vulnerable to significant unrealized losses if that particular asset performs poorly. You can strengthen your portfolio and spread the risk by diversifying into other assets.

As mentioned earlier, Ethereum’s direct competitors could be wise investments as a hedge against potential problems with Ethereum. You can also invest in tokens from other sectors, like payments, DeFi, and gaming. You can diversify even further by investing in non-crypto assets, which can easily be done on eToro .

Is now a good time to buy Ethereum?

If you are planning to invest for a very long time or use a dollar cost averaging strategy, then the current price isn’t that important, as you will believe that the value of ETH will rise in the long run. If, however, you want to trade or invest for the short term, you may want to try and buy when the price is about to rise. The factors below may help you to predict this.

Market cycles and Bitcoin

The price of ETH surged dramatically at the ends of 2017 and 2021. Both instances culminated in a peak at a new all-time high, followed by a crash that was just as dramatic. The crypto market as a whole seems to have followed this four-year pattern of major bull runs followed by big crashes.

There is no guarantee that this will continue, but patterns often do repeat, so you should study ETH’s price history and be ready for something similar to happen in the future. Bitcoin’s market dominance can influence the rest of the crypto market, so a surge in the price of ETH could potentially be preceded by a BTC price surge.

Ethereum upgrades

The Ethereum development team is very active in improving the network through upgrades. We have already seen Ethereum transition to Proof of Stake, and more upgrades in the future could further improve the blockchain’s efficiency and reduce costs for users.

The results of such upgrades could attract more users and projects to the Ethereum ecosystem, while anticipation around upgrades could improve investor sentiment, both of which could cause the price of ETH to rise. Planned future upgrades include the introduction of sharding, which will increase capacity and lower fees. You can read about planned upgrades here.

Growth of DeFi

Ethereum is the home of DeFi, and every time someone takes any kind of action on a DeFi app, such as swapping, staking, or adding liquidity, they need to pay a gas fee in ETH. Developers also need to pay gas fees to build and operate DeFi apps.

This means that if the DeFi sector grows and attracts more users, there could be more demand for ETH, which could increase its value. The total value locked (TVL) in Ethereum-based DeFi apps is a good indication of the size and activity of the DeFi sector.

Is it too late to buy Ethereum?

If you have watched the price of ETH fall significantly from its latest peak, you may be wondering whether you’ve missed your chance to invest and make a profit. However, we also saw ETH crash in price after its peak in 2018, and you could have invested at any point then and made significant returns during the next bull run.

While no one knows for certain what will happen in any market, many believe that future market cycles will see more bull runs yet. Only a tiny fraction of the population currently holds Ethereum, so you could still be a relatively early investor. More people discovering Ethereum and more institutions investing in it could fuel future bull markets.

There are plenty of reasons to believe that Ethereum could attract more users and investors in the future, such as the popularity and growth of sectors such as DeFi, NFTs, and metaverse gaming, which are, for the most part, Ethereum-based. What’s more, the recently introduced token-burning mechanism could actually make ETH deflationary, making it an even stronger investment in the future.

How much Ethereum should you buy?

The answer to this question depends on a range of personal factors, such as your finances, chosen strategy, and level of experience.

The number one piece of advice when investing in any cryptocurrency is don’t invest more than you can afford to lose. People with less money should therefore have smaller investment budgets than wealthier people.

When planning your budget, you should make sure that you still have more than enough money to cover day-to-day living costs. You should also consider what you may need money for in the longer term and how much. This is because waiting for the best time to sell could take years, and you don’t want to be forced to realize a loss because you run out of money.

Your strategy and experience could also be deciding factors in how much ETH you should buy. If you’re not very familiar with the crypto market, then only investing small amounts while you develop better knowledge and skills could be a wise choice.

If you follow a strategy, it may involve investing a certain percentage of your budget each time you get a buy signal from a particular technical indicator. One of the most popular and easy-to-use strategies is dollar cost averaging, which involves investing the same amount at regular intervals, regardless of price. For example, you could choose to invest a set percentage of your salary each month—but make sure you leave yourself more than enough income to live on.

Final Thoughts

Whether or not to buy Ethereum is an important decision, and you should do your own research before deciding whether Ethereum is a good investment for you.

This guide should help you with that research, as we have looked at some of the most important factors, from what influences the price of ETH to when and how much to buy. If, after studying this information, you decide that you should buy Ethereum, you can click on one of our top recommendations in the where to buy Ethereum section to purchase ETH in a matter of minutes.