2 Reasons to Invest in Ethereum — and 1 Reason Not to

Ethereum (CRYPTO:ETH) has been making waves in the crypto world, rivaling Bitcoin (CRYPTO:BTC) as one of the most popular cryptocurrencies. It’s also experienced explosive growth, with its price increasing by more than 1,000% over the past 12 months.

While crypto prices have plummeted over the past few weeks, that doesn’t necessarily mean it’s a bad time to buy. In fact, downturns can provide a great opportunity to invest when prices are lower. Considering Ethereum is one of the higher-priced cryptocurrencies, right now may be a good time to buy when it’s “on sale.”

Just because the cryptocurrency is more affordable doesn’t necessarily mean it’s a good investment, however. Ethereum is still a high-risk cryptocurrency, and it’s not the right choice for everyone. If you’re on the fence about investing, there are two reasons to consider buying now — and one reason to avoid it.

Piggy bank with crypto token in slot.

Image source: Getty Images.

Why to consider buying

1. Ethereum 2.0 could give it a competitive advantage

One of the criticisms of cryptocurrency in general is that it’s incredibly energy intensive. Crypto tokens are “mined” through a series of complicated computer processes. That mining process requires a significant amount of energy, and crypto critics have raised concerns over its impact on the environment.

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In fact, Tesla CEO Elon Musk recently announced that the company will no longer accept Bitcoin as a form of payment because of its environmental impact. That announcement was one of the reasons behind the most recent crypto crash as investors questioned whether cryptocurrency could really thrive over the long term.

Ethereum, however, is making moves to make the technology more energy efficient. Technically speaking, Ethereum is the name of the blockchain technology, while Ether is the token hosted on that blockchain. Ethereum 2.0 is an updated version of the blockchain that’s set to roll out later this year or early next year, and it claims to use 99.95% less energy than the current technology.

When Ethereum becomes more energy efficient, it could acquire a competitive advantage in the crypto industry and a leg up over Bitcoin.

2. The Ethereum blockchain has more utility

For any cryptocurrency to survive, it needs to have some type of real-world utility. Right now, Bitcoin is the most popular and most widely accepted cryptocurrency. However, the Ethereum blockchain is used for a variety of purposes, which gives it an advantage.

Ethereum is not only host to the Ether token, but it’s also the foundation for other applications like non-fungible tokens (NFTs) and decentralized finance. NFTs could change the way digital items are bought and sold, and the decentralized finance movement aims to revolutionize the banking industry.

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Also, Ethereum 2.0 plans to make the blockchain faster and more scalable so it can be used for even more applications. That could give Ethereum even greater utility and more of an advantage.

Ethereum’s widespread utility could benefit Ether as well. If Ether is required for applications on the Ethereum blockchain, Ethereum’s success could give Ether a competitive advantage over Bitcoin and other cryptocurrencies.

Why avoid Ethereum right now

1. It’s extremely volatile

As the past few weeks have proven, cryptocurrency is still an extremely volatile investment. Between May 12 and May 24, Ethereum lost nearly 50% of its value. While it has somewhat recovered since then, it can be tough to stomach downturns like these.

This particular crypto crash isn’t the first time Ethereum has experienced dramatic losses, either. In fact, over the course of 2018, Ethereum’s price plummeted by nearly 94%.

Ethereum Price Chart

Ethereum Price data by YCharts.

Cryptocurrency is still a highly speculative investment, and there’s no guarantee Ethereum will succeed over the long run. We’re in unchartered territory with crypto, and it’s anyone’s guess whether it will change the world or crash and burn.

If you decide to invest in Ethereum, be sure you have a high tolerance for risk and are only investing money you can afford to lose. The last thing you want to do is put your life savings behind an investment as high-risk as cryptocurrency.

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Ethereum has the potential for extraordinary gains, but it’s also an incredibly risky investment. Before you invest in this cryptocurrency, make sure you’ve done your research and know what you’re getting into. Crypto could be a life-changing investment, but it’s not right for everyone.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.


View more information: https://www.fool.com/investing/2021/06/03/2-reasons-to-invest-in-ethereum-and-1-reason-not-t/

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