Since its creation in July 2015, Ethereum‘s (ETH 3.30%) price has skyrocketed more than 44,000%, making it one of the best financial assets to have owned over that time frame. It has even outpaced Bitcoin. With a market cap as of this writing of $154 billion, Ethereum is worth more than major corporations like Netflix, PayPal, and Starbucks.
But with a new year almost here and such a monster return in the rearview mirror, is it too late for investors to buy Ethereum? Let’s take a closer look.
The Merge as a catalyst
Ethereum is the world’s largest blockchain that has smart-contract functionality. Smart contracts are self-executed software programs that allow two unrelated parties to transact with each other without an intermediary. Their potential to disrupt traditional industries are huge. Other popular cryptos that compete directly with Ethereum are Cardano and Solana.
In September, Ethereum completed an upgrade called The Merge that changed the system from proof-of-work to proof-of-stake (PoS), which means that token owners can lock up their holdings in order to help validate new transactions and secure the blockchain. The Merge and the switch to PoS pave the way for Ethereum to introduce “sharding” — a way to spread out the network’s load, and thus increase throughput — sometime in 2023.
The result is a more scalable and energy-efficient network, something many crypto believers point to as a reason why the industry is here to stay. Upgrading Ethereum’s network, a long-awaited process, could attract more users and developers to the world of cryptocurrencies, and this increased demand could drive a higher price for Ethereum in 2023 and beyond.
Real use cases
While most spectators might assume that what really matters in the crypto world is how quickly a token’s price can rise, the ultimate test is whether a blockchain can introduce real-world utility. Ethereum leads in this regard.
Ethereum currently has nearly 3,000 different decentralized applications (dApps) on its platform, which touch a range of use cases like gaming, security, and social media. And a particularly interesting area is decentralized finance (DeFi). DeFi services provide financial services, like saving, lending, and borrowing, without the need for a central authority. Despite the waning trust in the industry thanks to major blow-ups of important firms in the space this year, the total value locked on Ethereum, or money that’s deposited into various dApps and DeFi protocols, totals $25.2 billion, far more than any other cryptocurrency.
Then there’s the promise of non-fungible tokens (NFTs). While the market for NFTs has cooled off dramatically this year, I think there is a place for them besides being used only as a method for trading and owning digital artwork. Real businesses can introduce NFTs into their loyalty programs, like Starbucks plans to do with its Odyssey program. Being one of the oldest and most developed blockchain networks, Ethereum could be a hotbed for this type of activity.
Although Ethereum has been around for more than eight years, which seems like centuries in the crypto world, I think it might still have a long runway of innovation and growth left. What’s more, if inflation really starts to slow down and the economy strengthens in the next couple of quarters, now could be about as good a time as ever for new investors to get in on the action. With the price of one ETH down 67% in 2022, 2023 could be a bounce-back year.
Neil Patel has positions in Bitcoin and Ethereum. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, Netflix, PayPal Holdings, Solana, and Starbucks. The Motley Fool recommends the following options: short January 2023 $92.50 puts on Starbucks. The Motley Fool has a disclosure policy.
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