I believe that all cryptocurrencies, including Ethereum’s (ETH-USD) ether, are extremely vulnerable to huge downturns. That’s because I think that many governments, including in Washington, are likely to enact regulations that will greatly curtail, if not completely derail, the use of these instruments.
However, I predict that governments will probably allow Ethereum to survive and thrive. And therefore, I am convinced that ether is by far the best cryptocurrency to buy.
Ethereum Is Useful and Non-threatening
According to Investopedia, “Ethereum is an open-source, blockchain-based, decentralized software platform,” which “enables [complex computer programs] to be built and run without any downtime, fraud, control or interference from a third party.”
Further, the platform is “far less hackable than a cloud server” and can be used to implement a “smart contract,” techradar reported. The latter arrangement, which consists of computer coding, enables companies to automatically implement “predefined requirements,” such as sales discounts.
Meanwhile, the European Investment Bank, the EU’s main lender, intends “to offer a two-year digital bond on the Ethereum blockchain,” in a transaction managed by, among others, Goldman Sachs (NYSE:GS), Benzinga recently reported. And finally, Microsoft (NASDAQ:MSFT) enables users of its Azure cloud business to utilize Ethereum.
Clearly, by providing businesses and banks with an exceptionally secure, easily used network, Ethereum is tremendously useful to them. And unlike most cryptocurrencies, it’s not a threat to the profits that banks make through fiat currency transactions. The platform does not undermine governments’ abilities to control the money supply, trace transactions and levy taxes.
Therefore, I think Ethereum’s acceptance by banks and governments is a key reason why it’s used to a much greater extent by these institutions than other cryptocurrencies.
The Looming Cryptocurrency Crackdown
As I noted in a previous column on Dogecoin (CCC:DOGE-USD), I expect governments to launch a very tough crackdown on cryptocurrencies. Already, by treating all cryptocurrency transactions as capital gains or losses, the Internal Revenue Service (IRS) has made it much less convenient to use the instruments. Every transaction involving them must be reported to the agency.
Meanwhile, Treasury Secretary Janet Yellen and Federal Reserve Chairman Jerome Powell have left the door wide open for an expansive crackdown. Specifically, in February, Yellen reportedly said, “I don’t think that Bitcoin (CCC:BTC-USD) … is widely used as a transaction mechanism. To the extent it is used I fear it’s often for illicit finance. It’s an extremely inefficient way of conducting transactions, and the amount of energy that’s consumed in processing those transactions is staggering.”
For his part, Powell said cryptocurrencies are “highly volatile and therefore not really useful stores of value and they’re not backed by anything,” He added, “It’s more a speculative asset that’s essentially a substitute for gold rather than for the dollar.”
These comments, which denigrate cryptocurrencies’ utility as currencies, suggest to me that the odds are high that Washington will, sooner rather than later, look to ban their use as currencies.
Alternatively, the U.S. federal government may enact regulations that would make it extremely hard to use them to pay for goods and services. After all, Yellen said that Bitcoin is inefficient, enables a large amount of wrongdoing and hurts the environment. Meanwhile, Powell called cryptocurrencies “a speculative asset” that’s not a suitable replacement for the dollar.
But, given Ethereum’s high utility for companies and its apparent acceptance by banks and governments, I don’t expect the platform to be banned. Therefore, unlike most other cryptocurrencies, ether will probably not disappear.
The Bottom Line on Ethereum
Ether would likely, however, take a big hit if (and probably when) the government makes it very difficult or impossible to pay for goods and services with cryptocurrencies in “the real world,” i.e., outside of Ethereum.
Therefore, I recommend that investors avoid all cryptocurrencies, including ether. But if you’re going to buy a cryptocurrency, Ethereum is the best one to own.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Among his highly successful contrarian picks have been solar stocks, Roku, Plug Power, and Snap. You can reach him on StockTwits at @larryramer. Larry began writing columns for InvestorPlace in 2015.