Having been smashed in 2022, is it safe to buy this crypto?

The price of Ether (ETH 1.43%), the cryptocurrency of the Ethereum blockchain service, reached a record high of more than $ 4,800 in November last year. At the time, BOOX Research predicted that Ether’s price could continue to climb to $ 7,500 by the end of 2022. Unfortunately, rising interest rates and other macro gusts triggered a hasty retreat from more risky assets such as cryptocurrencies, and Ether now trades for less than $ 1100.

Ether is still the second most valuable cryptocurrency after Bitcoin (BTC 0.18%), but is it a convincing purchase after the last withdrawal? Let’s look at Ether’s progress, growth potential, and the challenges ahead.

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How did Ether become the second largest cryptocurrency?

Ether was first mined in 2015, and it achieved parity with US dollars in the very first year. If you had bought 100 Ether tokens for $ 100 when it happened, your investment would be worth $ 110,000 today.

Ether gained momentum because the Ethereum blockchain supports decentralized “Web3” technologies such as smart contracts, decentralized apps (dApps) that are not linked to centralized app stores or operating systems, and NFTs (non-fungible tokens). Some of these technologies can be used to secure financial services, web browsing, gaming, advertising, cybersecurity, identity management and supply chain services.

In comparison, Bitcoin’s blockchain is only used to directly recover the cryptocurrency. Therefore, Bitcoin is often considered a resource, while Ether is seen as the leading cryptocurrency for a next generation data platform.

Ether is also a somewhat more environmentally friendly alternative to Bitcoin because it requires less energy to extract. Furthermore, the forthcoming “Merge” upgrade (also known as Eth2) is expected to reduce the total energy consumption for mining by approximately 99% when it rolls out as planned over the next few months.

The oxen vs. the bears

The bulls believe that the Merge upgrade will enable Ethereum to scale up its blockchain network and support an expanding ecosystem of Web3 applications. Since Ether will be used as the default currency for these applications, the market value should eventually stabilize. If that happens, it could become a viable hedge against inflation such as gold, silver and other precious metals.

Bjørnene believes that decentralized apps will remain a niche concept since most ordinary consumers will still download their apps from a centralized marketplace that appleits App Store or Alphabetfrom Google Play. Tighter regulations, liquidity problems on cryptocurrency exchanges and implosions of smaller “altcoins” will also prevent new buyers from entering the market.

The bears will point out that other environmentally friendly blockchain-based cryptocurrencies like Solana (SUN 0.37%) and Avalanche (AVAX 4.18%) – which also supports smart contracts and other Web3 technologies – has not disappeared yet. These competitors can continue to gain ground on Ethereum, especially if the long-awaited Merge upgrade is delayed.

Last but not least, the gloomiest bears would argue that the entire cryptocurrency market was just a mirage created by low interest rates, stimulus checks and the temporary increase in speculative trading last year. As the tailwind subsides, a new “crypto winter” is likely to begin, according to Coin baseCEO Brian Armstrong, and is unlikely to end until the macro situation improves.

There is no need to buy Ether right now

Ether’s biggest catalyst is still months away from being realized, but interest rates will continue to rise for the foreseeable future. Even if the broader markets stabilize, coup hunters are likely to scoop up declining growth stocks – which are much easier to value – than speculative cryptocurrencies. Although investors are turning their attention to the cryptocurrency market again, I expect Bitcoin to attract more attention than Ether because it is still the best cryptocurrency.

Therefore, I still do not think it is safe to buy Ether – or any cryptocurrency – as long as investors avoid the market’s more speculative investments.