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The Investment Case for Ethereum in 2024

June 03, 2024

Read Time 6 MIN

Dive into our expert analysis of Ethereum as an investment, covering its market dynamics, technological strengths, and long-term potential.

Please note that VanEck has exposure to Ethereum.

Since its release in 2015, Ethereum adoption has grown exponentially, attracting hundreds of millions of users, and gaining the attention of mainstream investment firms and payment applications. As a decentralized platform enabling smart contracts and distributed applications (dApps) to be built and run without any downtime, fraud, control, or interference from a third party, Ethereum stands out in the cryptocurrency world. This article evaluates Ethereum’s potential as an investment, considering its unique position and future prospects in the evolving financial landscape.

Understanding Ethereum: More Than Just a Cryptocurrency

Ethereum leverages blockchain technology but extends beyond being just a cryptocurrency. The Ethereum Virtual Machine (EVM) is central to its operations, differentiating it from other digital currencies. The EVM, a sandboxed virtual stack embedded within each Ethereum node, executed bytecode and smart contracts – self-executing contracts with terms directly written into code, operating without downtime, censorship, or fraud. This innovation shifts the paradigm from traditional contracts requiring intermediaries to automated, trustless transactions.

Market Dynamics: Assessing Ethereum's Investment Viability

The price of Ethereum is influenced by market sentiment, driven by news, social media, and overall attitude towards the crypto market, which significantly impacts Ethereum’s price. Positive news about institutional adoption can lead to price surges, while negative sentiment, such as fears of regulatory crackdowns, can cause price drops.

Market Sentiment: Investor sentiment plays a crucial role in the cryptocurrency market, often driven by news, social media, and overall investor attitude towards the crypto space. For example, positive news about institutional adoption of Ethereum can lead to price surges, as seen when large financial institutions announce their support for Ethereum or when there's a growing interest in decentralized finance platforms built on Ethereum. Conversely, negative sentiment, such as the spreading of unfounded rumors or fears of a regulatory crackdown, can lead to significant price drops.

Global Economic Trends: Macroeconomic factors such as inflation rates, interest rates, and economic policies in major economies can significantly impact Ethereum's price. For instance, during times of high inflation, some investors may turn to cryptocurrencies like Ethereum as a hedge against their local currency's devaluation. Similarly, changes in monetary policy, such as the Federal Reserve's interest rate decisions, can influence investor appetite for riskier assets like Ethereum.

Regulatory Changes: The regulatory environment surrounding cryptocurrencies is continually evolving and can have immediate impacts on their prices. Positive regulatory news, such as a country legalizing cryptocurrencies or clarifying tax guidance, can lead to price increases. Conversely, negative regulatory actions, such as bans or restrictive regulations in significant markets like the US, China, or South Korea, can lead to sharp declines in price. For example, China's crackdown on cryptocurrency mining and trading in 2021 led to a significant drop in the price of Ethereum and other cryptocurrencies.

Technological Developments: Advances in Ethereum’s technology or its ecosystem can also influence its price. The transition from Ethereum 1.0 to Ethereum 2.0, with its shift to proof-of-stake (PoS), aimed to reduce transaction fees and increase transaction speed and energy efficiency. Such upgrades can lead to positive price movements as they address scalability and cost issues. However, delays or problems in these technological upgrades can lead to negative market reactions.

Ethereum has experienced significant volatility since its launch, reflecting market dynamics, technological milestones, and investor sentiment.

2017 Boom: Ethereum’s first major price increase occurred in 2017, peaking at around $1,400 in early 2018, alongside a broader cryptocurrency market boom.

2020-2021 Growth: Significant growth in 2020 and 2021 saw Ethereum reaching new highs above $4,000, driven by its growing adoption and the booming DeFi sector.

Crypto ETFs: The adoption of Exchange-Traded Funds (ETFs) has further boosted Ethereum’s price. ETFs provide a regulated way to gain exposure to cryptocurrencies, attracting both individual and institutional investors and increasing demand for Ethereum.

Investing in Ethereum is about more than just buying a cryptocurrency; it's about investing in a platform with wide-ranging applications, from DeFi to tokenization and beyond. In our view, the investment case for Ethereum is strong and diverse:

Technological Edge: Ethereum's platform allows for creating smart contracts, programs that automatically execute when certain conditions are met. This feature has huge potential in reshaping industries, from finance to art.

Market Share: Ethereum's platform supports numerous other cryptocurrencies. Its influence is clear when you consider that, as of September 2023, 10 of the top 20 cryptocurrencies are based on or linked to Ethereum.

Applications: Ethereum’s versatility extends beyond cryptocurrencies to DeFi, games, and major organizations integrating blockchain technology.

Comparing Ethereum with traditional investment options such as stocks, bonds, or even other cryptocurrencies is crucial for understanding its unique risk and reward profile. While Ethereum offers high growth potential, it also comes with higher volatility and risks, particularly regulatory and technological challenges.

Bitcoin: Often viewed as a store of value or digital gold, bitcoin appeals to investors seeking a hedge against economic instability.

Ethereum: With its broad utility and foundational role in DeFi and NFT spaces, Ethereum presents a different investment proposition focused on decentralized technology’s potential.

Learn more in Bitcoin vs. Ethereum in 2024: Comparison & Outlook

Ethereum’s Long-Term Investment Potential

Expert predictions for Ethereum are generally optimistic, though they acknowledge the potential for volatility driven by regulatory changes, technological advancements, and market adoption. Ethereum is undergoing a significant transition to Ethereum 2.0, which promises to bring scalability, security, and sustainability improvements through the shift to Proof of Stake and the introduction of sharding.

These developments could significantly impact their performance, adoption, and investor interest, presenting both challenges and opportunities for the future.

Thanks to improving functionality, lower take-rates, and an ethos of inclusivity, we are bullish on decentralized software protocols as an alternative to existing intermediaries. Among the contenders to capture a majority of economic value—as is common in digital platforms—Ethereum stands out to us as one of the most probable long-term disruptors. According to our recent analysis, we believe Ethereum may emerge as a powerhouse among digital assets, with a predicted token price of $11.8k by 2030. Ethereum's unique approach combines a globally distributed infrastructure, smart contract capabilities, and a digital commerce model that enables trustless transactions.

Conclusion

Ethereum’s unique combination of technological innovation, market influence, and application versatility sets it apart from other cryptocurrencies and traditional investment options alike.

Ethereum's foundational technology, the Ethereum Virtual Machine, and its pioneering smart contract functionality, represent a seismic shift in how we conceive of and execute contractual agreements and transactions. By eliminating intermediaries and enabling decentralized applications, Ethereum has laid the groundwork for a future where decentralized finance and other blockchain-based solutions can flourish.

The price of Ethereum, subject to the ebb and flow of market sentiment, global economic trends, regulatory landscapes, and technological advancements, underscores the volatile yet potentially rewarding nature of investing in digital assets. Noteworthy is Ethereum's adaptability and resilience in the face of these challenges, highlighted by its ongoing transition to Ethereum 2.0. This upgrade promises to address some of the most significant concerns surrounding scalability and sustainability, further solidifying Ethereum's position in the market.

Looking ahead, the long-term investment potential of Ethereum seems optimistic, driven by its technological advancements, growing adoption, and the broadening scope of its applications. However, as with any investment, potential investors should approach with caution, recognizing the inherent volatility and risks associated with the cryptocurrency market.

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IMPORTANT DISCLOSURES

Definitions

Bitcoin (BTC) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer Bitcoin network without the need for intermediaries.

Ethereum (ETH) is a decentralized, open–source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

Risk Considerations

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

The information, valuation scenarios and price targets presented on any digital assets in this blog are not intended as financial advice, a recommendation to buy or sell these digital assets, or any call to action. There may be risks or other factors not accounted for in these scenarios that may impede the performance these digital assets; their actual future performance is unknown, and may differ significantly from any valuation scenarios or projections/forecasts herein. Any projections, forecasts or forward-looking statements included herein are the results of a simulation based on our research, are valid as of the date of this communication and subject to change without notice, and are for illustrative purposes only. Please conduct your own research and draw your own conclusions.

Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.

Digital asset prices are highly volatile, and the value of digital assets, and Web3 companies, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.

Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.

Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.

Web3 companies include but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

©️ Van Eck Associates Corporation.

IMPORTANT DISCLOSURES

Definitions

Bitcoin (BTC) is a decentralized digital currency, without a central bank or single administrator, that can be sent from user to user on the peer-to-peer Bitcoin network without the need for intermediaries.

Ethereum (ETH) is a decentralized, open–source blockchain with smart contract functionality. Ether is the native cryptocurrency of the platform. Amongst cryptocurrencies, Ether is second only to Bitcoin in market capitalization.

Risk Considerations

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

The information, valuation scenarios and price targets presented on any digital assets in this blog are not intended as financial advice, a recommendation to buy or sell these digital assets, or any call to action. There may be risks or other factors not accounted for in these scenarios that may impede the performance these digital assets; their actual future performance is unknown, and may differ significantly from any valuation scenarios or projections/forecasts herein. Any projections, forecasts or forward-looking statements included herein are the results of a simulation based on our research, are valid as of the date of this communication and subject to change without notice, and are for illustrative purposes only. Please conduct your own research and draw your own conclusions.

Investments in digital assets and Web3 companies are highly speculative and involve a high degree of risk. These risks include, but are not limited to: the technology is new and many of its uses may be untested; intense competition; slow adoption rates and the potential for product obsolescence; volatility and limited liquidity, including but not limited to, inability to liquidate a position; loss or destruction of key(s) to access accounts or the blockchain; reliance on digital wallets; reliance on unregulated markets and exchanges; reliance on the internet; cybersecurity risks; and the lack of regulation and the potential for new laws and regulation that may be difficult to predict. Moreover, the extent to which Web3 companies or digital assets utilize blockchain technology may vary, and it is possible that even widespread adoption of blockchain technology may not result in a material increase in the value of such companies or digital assets.

Digital asset prices are highly volatile, and the value of digital assets, and Web3 companies, can rise or fall dramatically and quickly. If their value goes down, there’s no guarantee that it will rise again. As a result, there is a significant risk of loss of your entire principal investment.

Digital assets are not generally backed or supported by any government or central bank and are not covered by FDIC or SIPC insurance. Accounts at digital asset custodians and exchanges are not protected by SPIC and are not FDIC insured. Furthermore, markets and exchanges for digital assets are not regulated with the same controls or customer protections available in traditional equity, option, futures, or foreign exchange investing.

Digital assets include, but are not limited to, cryptocurrencies, tokens, NFTs, assets stored or created using blockchain technology, and other Web3 products.

Web3 companies include but are not limited to, companies that involve the development, innovation, and/or utilization of blockchain, digital assets, or crypto technologies.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future performance.

©️ Van Eck Associates Corporation.