ETH — Should it be your next investment?
If Bitcoin had been one of the most attractive tokens since March 2020, things changed starting with October, when Ether had started to outperform. Still below all-time highs and after breaking above a critical resistance area, ETH embarked on a massive bull run, that had taken the token price to $2,500 for the first time in history.
As the second-largest crypto by market capitalization, in tandem with the numerous benefits of the Ethereum blockchain, this had been one of the places where capital had been flowing. The big question now is whether Ether should be your next investment and today Markets Legion will analyze some of the pros and cons.
More attractive valuation as compared to BTC
BTC is trading around $55,000 at the time of writing, which is way more expensive as compared to the $2,300 ETH valuation. On one side, people can argue that the global use and demand for Ether is much smaller, but at the same time, the camp suggesting it is a very popular cryptocurrency and thus can grow in value has a solid point of view.
The technical picture is favorable for buyers, after the price broke above the January 2018 high, retested the broken resistance, and continued to move higher. Only a sharp retracement below $2,000 can negate the bullish moment, a piece of good news for buyers given that did not happen yet.
Cryptocurrency investors had been rotating from very expensive tokens to cheaper ones for the past several months. As the next paragraph will highlight, this is also creating a major downside vulnerability that should be considered by long-term investors.
Price trading near all-time highs
When the price is trading near or at all-time highs, the investors face several important difficulties. First, it is hard to find areas of resistance in uncharted terrain. Second, elevated levels create an asymmetric risk to the downside, as sellers might become increasingly incentivized to sell some of their holdings to cash out profits. An investor buying at current levels is thus forced to have long-term expectations and not be influenced by short-term bearish corrections.
Ethereum 2.0 benefits to weigh on price
Another positive implication that might be generating sustained ETH buying is the implementation of Ethereum 2.0. Since many different ETH instruments are available for trading at marketslegion.com and new incentives to buy can show up, the upside can extend further.
Ethereum 2.0 comes with PoS, a mechanism that requires miners to stake ETH and receive rewards when new blocks are verified based on staked amounts. Experts believe this consensus mechanism is supporting valuations, as large ETH holders will need to hold their tokens, even if valuations start to drop impulsively, not aggravating a bear market, as it happened in 2018.
The new upgrades come with faster transaction processing and well as increased scalability. Critics had been accusing the Ethereum foundation of staying behind the curve, as other projects such as Cardano are offering much better blockchain performance.
Cyclical market behavior to count
Bitcoin is still the token driving the entire crypto market momentum and thus the 4-years cycles unfolding based on halving events should not be excluded from an investment decision-making process. The previous bull run lasted for around a year and a half, which means the current one might have a few more months left.
However, if the cyclical market behavior will occur again, Ether will eventually start to weaken impulsively, creating headaches for investors that bought at elevated levels. The bottom line is that there are both strengths and weaknesses in ETH, which leaves the investor with the hard task of deciding what will be the variables that will weigh on prices.
