Ethereum
Is Ethereum still a crypto millionaire?
If you are considering investing in Ethereum, focus on future growth potential and not historical track record.
Since its launch in July 2015, Ethereum (ETH 0.68%) has skyrocketed from just $0.31 to $3,000 today. This represents a return on investment of almost 10,000! If you had invested just a few hundred dollars in Ethereum ten years ago, you would probably be a millionaire today.
But does Ethereum still have the power to make you a millionaire? While it’s hard to argue with Ethereum’s historical track record, things become a little more difficult when considering its future prospects.
Competitive landscape
When Ethereum launched in 2015, it was the only blockchain platform for smart contracts. And, as such, he had an incredible first-mover advantage. It was probably not until 2020 when blockchain took off. Solana (GROUND 2.51%) appeared, that Ethereum saw its first legitimate rival.
To put this into perspective, imagine if your favorite Silicon Valley tech company had an incredible five-year head start on the competition. After this period, it would likely appear to have an insurmountable lead in terms of market share, intellectual property and customer dependency. Frankly, it would seem unstoppable.
This is why I think Ethereum’s ability to replicate its history is limited at best. There is simply too much competition now and Ethereum is no longer the only major layer 1 blockchain. Check for yourself: three of the top 15 cryptocurrencies by market cap are direct rivals to Ethereum. This type of competition simply did not exist in 2015.
Incremental or disruptive innovation
Plus, I’ve grown a little bitter about the endless upgrades to the Ethereum blockchain. Yes, the 2022 blockchain upgrade, known as The Merge, was impressive. People have compared this engineering feat to changing the engine of a plane in mid-flight. The merger brought about a total transformation of Ethereum. In doing so, Ethereum became faster, cheaper to use, and more efficient in processing transactions.
Image source: Getty Images.
However, Ethereum initially promised us 1 million transactions per second, and we are far from achieving that. What’s even more concerning is that Ethereum now relies on a complex mix of layer 2 blockchains for scalability and functionality. Ethereum’s main blockchain (i.e. layer 1) is simply not fast or efficient enough to handle current transaction volumes. So we’re left with several more upgrade cycles, each filled with new tweaks and upgrades.
There is, of course, nothing wrong with incremental innovation. But there is a big difference between incremental innovation and truly disruptive innovation. And that’s what worries me about Ethereum: we may have witnessed the end of disruptive innovation with The Merge. And this will open the door for fast and agile competitors to challenge Ethereum.
The SEC and Regulatory Risk
Finally, there’s the pesky little matter of the Securities and Exchange Commission (SEC). Since The Merge, the SEC has not really decided whether Ethereum is a commodity or a security. When Ethereum converted to a proof-of-stake blockchain as part of The Merge, this has changed the way people interact with blockchain, with possible regulatory consequences.
For example, the process of staking crypto could be interpreted by some as “the investment of money in a joint enterprise with a reasonable expectation of profits from the efforts of others.” According to the SEC, this would make Ethereum a security.
This may seem incredibly shaky from a legal perspective, but it’s important for investors. Some Bitcoin maximalists are currently rejoicing over Ethereum’s potential regulatory dilemma, and there is a very real risk that the SEC will view Ethereum as a security. If that happens, all bets are off. I don’t think this would pose an existential risk to Ethereum, but it would certainly scare away many investors.
The myth of 1000x crypto
If you have $1,000 to invest in crypto today, you will need a 1,000x return on your investment to become a millionaire. So, let’s rephrase the original question about Ethereum being a millionaire crypto creator as follows: Can Ethereum increase its value 1,000 times from its current price of $3,000?
This would suggest a stratospheric price of $3 million for a single Ethereum coin in the near future. Given Ethereum’s circulating supply of 120 million coins, this would imply a total market cap of $360 trillion! In comparison, the total market capitalization of S&P500 these days, that’s about $50 trillion.
Ultimately, investing based solely on past performance is like driving a car looking only in the rearview mirror. So stop focusing so much on Ethereum’s historical track record and focus more on how it’s going to create value in the future.