Should You Invest In Ethereum?

Get the facts about trading Ethereum before you start. Discuss investment strategies, review market research, and get real-time updates

14,526,907 Ethereum positions opened on eToro

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ETHEREUMEthereum
514.09861.7623 ( 0.34%)
17069.57 (0.2%)
0.5168 (0.14%)
89.54 (-0.2%)
69.17 (1.14%)
0.2964 (1.61%)

Investing in Ethereum: What to consider

Ether (sometimes called Ethereum) is a cryptocurrency, initially meant to be used by developers using the Ethereum blockchain platform. Introduced in 2015, the currency quickly rose in popularity, reaching billions of dollars in market cap and solidifying itself as the second most popular cryptocurrency after Bitcoin. Since sentiment to the cryptocurrency market as a whole is dictated by Bitcoin, the general acceptance of this newer currency could be credited in part to the creators of Bitcoin.

Roughly 95% of all global currency has no physical form, and exists digitally. The western world’s gradual transition towards a walletless economy means that the idea of a currency needing physical coins and notes is fading away. As the use of digital currencies becomes more widespread, cryptocurrencies could be accepted as payment by an increasing number of businesses. Therefore, alongside Ether being used for applications made on the Ethereum platform, it might also become widely used as a form of payment.

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Historical Price Charts

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Who should include Ethereum in their portfolios?
  1. Day traders: Ether has been known to have multiple-percentage swings in one day, making it a good option for day traders who believe they know what its short-term movements will be.
  2. Investors bullish on Ether: While the cryptocurrency market is still extremely volatile, those who believe its popularity will continue to increase, could see Ether as a long-term investment option, under the assumption it will show similar patterns to those of Bitcoin in its earliest days.
  3. Bitcoin traders: As Ether continues to solidify its status as a popular cryptocurrency, it is possible that it will become a hedging tool used by Bitcoin investors.
  4. Currency traders: The cryptocurrency market is perceived by some as a safe-haven for when traditional currencies become too volatile. Since Ether is more separated from mainstream markets than Bitcoin, it could become the go-to safe-haven for some traders.
What drives Ether’s price?

While being affected by many factors, in the past, Ether has been affected by two main forces: Bitcoin and the Ethereum platform. On the Bitcoin front, there could be either a negative correlation or a positive one between the two cryptocurrencies. Since Bitcoin is the weatherbell for sentiment towards the cryptocurrency space, when its price changes due to factors relating to the market as a whole (such as volatility in traditional markets or regulations which influence its acceptance by mainstream traders), Ether could also move in the same direction. On the other hand, if a certain occurrence influences Bitcoin specifically, such as when the SEC denied a Bitcoin-Based ETF in March 2017, the correlation could be negative, causing Ether to rise when the Bitcoin drops.

The second force that drives Ether prices is the Ethereum platform. Since Ethereum is a blockchain platform, relying on a code infrastructure, it periodically reaches a milestone known as a “hard fork.” A hard fork is a change in the platform which makes it backwards incompatible, and is supposed to improve it as a whole. If a certain hard fork increases the platform’s security for instance, it could be logical to assume that Ether traders will have more faith in it and demand will increase. On the other hand, if the hard fork damages the platform (like the DAO hard fork, which will be expanded upon later), it could cause prices to drop significantly.

Ethereum vs. Bitcoin

There are many similarities between Ether and Bitcoin: They are both blockchain-based cryptocurrencies and could both be mined by users around the world who allocate some of their computing power to process transactions. However, there are also several differences. While the yearly supply of Ether is limited to 18 million a year, Ethereum could theoretically continue to introduce new currency to infinity, making its supply unlimited in the long-run. Bitcoin’s supply on the other hand is finite. Its creators decreed that the final number of Bitcoin will be 21 million. Each year a diminishing amount of Bitcoin is introduced, and it is scheduled to reach the 21 million mark in the year 2140.

Another main difference is processing speed. Cryptocurrency transaction require a great deal of computing power to process, and therefore are not done instantaneously. However, while the average Bitcoin transaction can take up to 10 minutes to process, an Ether transaction takes only 15 seconds, contributing to its volatility and liquidity. Lastly, the distribution of each currency differs from one another. While the majority of Bitcoin owners are early adopters who mined the currency in its earliest days, most Ether owners are people who took part in Ethereum’s initial crowdfunding campaign - meaning they purchased their currency, rather than mined it. However, it is predicted that the miner vs. buyer ratio will tip in favor of the miners by 2022.

History of Ether

Ether was first introduced in the summer of 2015 as the currency for the Ethereum platform, and was valued at $2.8. Ethereum is a blockchain-based decentralized development platform, which enables its users to create an array of blockchain-based applications. Ether was created to serve as the currency for applications that require a payment method, but later became an investment opportunity for day traders. In June 2016, the DAO hard-fork undermined the currency’s allure, when it was discovered that the platform update left the door open for hackers to seize some $50 million in Ether. The discovery caused Ether prices to drop some 30% in a single day. However, the hack was dealt with, and Ether prices have since recovered reaching an all-time high in March 2017.

Conclusion: Ethereum could be the next Bitcoin

Bitcoin has paved the way for Ether, facing trials and public opinion battles that made the acceptance of Ether smoother. Many traders are considering Ether to be a viable investment option, and some believe it is en-route to becoming the next Bitcoin - perhaps even surpassing it. However, it is important to remember that the Bitcoin market is significantly larger, and has been around for longer, so there might be some time before Ether presents actual competition. And yet, some would say that Ether is the silver to Bitcoin’s gold, solidifying itself as a more affordable option in the same market. Either way, it seems that Ethereum is here to stay, and Ether could continue to grow in popularity and value.

*This content is for information and educational purposes only and should not be considered investment advice or an investment recommendation.

*Past performance is not an indication of future results. All trading carries risk. Only risk capital you're prepared to lose.

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