Ethereum
Is Ethereum a No-brainer Buy After Bitcoin Halving?
The world’s second-largest cryptocurrency still has some short-term catalysts.
Many cryptocurrencies pulled back from their all-time highs a few years ago as rising interest rates pushed investors toward more conservative holdings. Still, three tailwinds have buoyed the broader market this year: expectations for lower rates, the approval of the first cryptocurrencies, and the adoption of the new standard. Bitcoin (Bitcoin -1.49%) of cash exchange-traded funds (ETFs) in January and the Bitcoin halving in April.
But now that Bitcoin has concluded its long-awaited halving, which reduces Bitcoin mining rewards every four years, there will likely be fewer near-term catalysts for the world’s leading cryptocurrency. So it’s time to turn our attention to Ethereum (ETH -1.71%), the world’s second-largest cryptocurrency, for bigger gains this year?
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The differences between Ethereum and Bitcoin
Ether is the native token of the Ethereum blockchain, which was launched in 2015. Ethereum initially used the same proof of work (PoW) mining method like Bitcoin, but it has moved to a more energy-efficient method proof of stake (PoS) in a process called The Merge in 2022. This transition reduced Ethereum’s mining energy consumption by 99.95% and made it deflationary – meaning more coins were minted to be burnedor permanently removed from circulation, than created. PoS blockchains also allow investors to markor lock their tokens for fixed periods to earn interest-like rewards.
The Ethereum blockchain was also developed to support smart contractswhich can be used to create decentralized applications (Decentralized applications), smaller tokens, and other crypto assets. Bitcoin’s blockchain can only be used to mine more coins. This is why Ethereum is generally valued by the expansion of its developer ecosystem, while Bitcoin is often compared to gold or silver.
This fundamental difference led the U.S. Securities and Exchange Commission (SEC) to declare that Bitcoin was the only cryptocurrency that could be classified as a commodity. This classification supported its approval of the first Bitcoin spot ETFs.
Still, the SEC was reluctant to label Ethereum and other PoS cryptocurrencies as commodities, saying the staking process made them similar to securities. Nevertheless, the SEC still paved the way for Ethereum’s first spot-priced ETF applications earlier this year.
Tailwinds and Headwinds for Ethereum
Ethereum’s biggest near-term catalyst will be the potential approval of its first spot ETFs. According to Reuters, the SEC has already granted preliminary approvals to at least three of the eight planned spot ETFs, and the latest speculation suggests that most of these funds could begin trading as early as July 23.
Ethereum’s price has already risen by about 50% this year, but the first spot ETFs could push its price even higher. For reference, Bitcoin’s price has risen by more than 40% since its first 11 ETFs were approved on January 10.
Another major catalyst is Ethereum’s recent Dencun upgrade, which increases its speed and reduces the gas costs — essentially a network usage fee — for its Layer 2 blockchain. Stabilizing and falling interest rates could also encourage investors to return to Ethereum and other cryptocurrencies.
Yet Ethereum still faces unpredictable headwinds. The Dencun upgrade has made Ethereum inflationary again, and its supply will continue to increase unless more tokens are burned. It also still processes transactions at a slower rate than newer PoS blockchains such as Solana (GROUND 1.95%) and Cardan (ADA -4.53%) – and these limitations could slow the expansion of its ecosystem.
Ethereum’s planned spot ETFs will also not feature staking mechanisms like its underlying tokens, which may not be a compelling alternative to owning the cryptocurrency directly. Finally, market expectations for lower rates and ETF approval may already have been priced into its current price.
So, is Ethereum a no-brainer buy right now?
Ethereum is trading at around $3,400 at the time of writing, but some bullish investors expect it to make huge gains in the coming years. VanEck’s Matthew Sigel and Patrick Bush expect its price to more than triple to $11,800 by 2030, while Ark Invest’s Cathie Wood says it could be worth a fortune. the whopping sum of $166,000 by 2032.
We should take these optimistic estimates with a grain of salt, but I believe that Ethereum spot ETF approvals and lower interest rates should limit its potential for downside this year. The next planned upgrade to the Ethereum network, Pectra, is expected to further increase its speed and reduce its gas fees to keep pace with Solana and Cardano. Therefore, I think Ethereum is still a good cryptocurrency to accumulate right now — but investors shouldn’t necessarily expect it to take off in the coming months.
Sun Leo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.