Ethereum: Buy the Dip? | The Motley Fool

Ever since hitting an intrayear high near $2,140 in mid-April, Ethereum (ETH 0.15%) has tumbled about 13%. Ethereum now trades for around $1,861, and some analysts even think it could retreat even further by the end of this year.

So is this a great opportunity to buy Ethereum at a discounted price, or is your money better spent elsewhere? If you are thinking about buying the dip, there are two key factors to consider.

Impact of blockchain upgrades

The first is the potential impact recent blockchain upgrades might have on Ethereum’s future price. If new blockchain upgrades are primarily incremental in nature, then there’s no point getting excited about them, and they might not result in significant price gains. However, if new blockchain upgrades address key problems or fundamental issues, then they could be instrumental in propelling future gains.

In April, Ethereum completed its first major blockchain upgrade since the Merge last September. Known as Shapella (a portmanteau of “Shanghai” and “capella”), this blockchain upgrade addressed one key pain point for Ethereum users: the inability to withdraw their staked crypto funds. Until this change was made, the future of staking on the Ethereum blockchain was at risk. Judging from the amount of Ethereum that has been staked over the past three months, staking has been a huge success. That’s exactly the type of blockchain upgrade that I’m looking for as a long-term investor.

And that’s why I’m excited about the next major upgrade coming for Ethereum by the end of the year. Known as “Dencun” (a portmanteau of “Deneb” and “Cancun”), this upgrade will introduce an entirely new way to process transactions on the main Ethereum blockchain. According to some Ethereum developers, the full implementation of this change could result in a huge jump in processing capacity, up to a staggering 100,000 transactions per second. This would put Ethereum well ahead of other blockchains. Even Ethereum’s fastest blockchain peers can claim only theoretical rates of about 65,000 transactions per second.

Ethereum’s market dominance

The other factor to keep in mind is Ethereum’s continued prominence in key segments of the blockchain world. There are two areas of particular concern: non-fungible tokens (NFTs) and decentralized finance (DeFi). And in both areas, Ethereum’s dominance is unquestioned.

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For example, consider the NFT market. Although other blockchains have had some success with NFTs, nobody has yet equaled the popularity of Ethereum’s top NFT collections, such as the Bored Ape Yacht Club. The 20 most valuable NFT collections in the world are all on the Ethereum blockchain, with the Bored Apes currently ranks no. 1. Moreover, Ethereum is still far and away the leader when it comes to overall NFT sales volume.

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It’s much the same story in the DeFi market. Ethereum accounts for 58% of total value locked (TVL), a key metric for determining overall DeFi strength. The term refers to the total amount of crypto funds “locked up” in various DeFi protocols. As a general rule of thumb, the higher the TVL number, the better. Ethereum is No. 1 here, and it’s not even close. Ethereum has a total TVL of $25 billion, while its closest competitor has a TVL of just $5.5 billion. 

From my perspective, what’s unique about Ethereum is how much it appeals to both retail and institutional investors. NFT market strength is a sign of just how well Ethereum resonates with creators, developers, and consumers, while DeFi market strength is a sign of how well Ethereum is meeting the needs of institutional investors, who are getting involved in DeFi for purposes such as liquidity or risk management. So for Ethereum to be excelling in both areas is a very welcome sign if you’re looking for a long-term investment target.

What happens next for Ethereum?

While there is certainly a long-term case for buying the dip now with Ethereum, just keep in mind that there is no guarantee there will be a sharp upward trajectory in 2023. In fact, some analysts are calling for Ethereum to fall to as low as $1,000 if the SEC decides to intensify its crypto crackdown. So there is certainly a high degree of risk and volatility in Ethereum.

But Ethereum is putting the pieces into place for long-term price appreciation. Recent blockchain upgrades are building future value, and this is already showing up in the numbers. Moreover, Ethereum continues to play a dominant role in the blockchain world. For those reasons, I can firmly endorse buying the dip on Ethereum.