The crypto space has finally caught some fire and Ethereum (CCC:ETH-USD) isn’t missing out on the gains. However, its recent run toward $4,000 has had some cold water thrown on it.
The cryptocurrency industry has had a rough couple of days. Ethereum prices closed lower by 12.5% on Sept. 7, and fell as much as 23.25% that day. This type of volatility makes it hard for cryptocurrencies to become a mainstay. It also makes it tough for investors to hold onto them.
That said, a 20% shakeout isn’t all that unreasonable when Ethereum rallied 134% from its low on July 20 to its high on Sept. 3. And it gave some amazing trade setups along the way.
Let’s look at three reasons why Ether is one to stick with.
Despite Volatility, the Chart Is Finally Bullish
Ethereum has had a ton of volatility over recently, but it continues to hold key levels.
On the crypto’s deep dip, the key $2,900 level held firm, while the 50-day moving average acted as support too. The resulting rebound sent Ether back above the $3,300 area, as it now contends with this zone as support and the 21-day moving average as resistance.
If Ethereum can clear the high from Sept. 8 and the 10-day moving average, the 78.6% retracement near $3,800 is in play. That’s followed by $4,000, then the all-time high near $4,400.
On the downside, bulls desperately want to see the $3,300 level act as support, along with the 61.8% retracement. If it fails, the $2,900 to $3,000 area will be on investors’ radar, along with the 50-day moving average. Another dip to this area may be a buying opportunity, but we need to see support hold. If it fails, $2,500 and the 200-day moving average could be next.
For now, the charts remain bullish — although they also remain volatile.
Ether Is Actually Practical
Bitcoin (CCC:BTC-USD) was created with a different idea in mind than the fiat currency model we use today. With a finite amount of supply that is released at a rather steady rate, it’s not subject to wild swings in money supply controlled by a central bank.
As a result, Bitcoin acts as a store of value more than it’s used for practical purposes like transactions. That can be observed in the fact that it’s expensive and slow to use Bitcoin for transactions — especially when compared to a credit card platforms like Visa (NYSE:V) or MasterCard (NYSE:MA).
It doesn’t help that Bitcoin (along with most cryptos) is incredibly volatile.
However, that’s where Ethereum becomes a focus. It wasn’t intended to be a store of value, but that’s what it has become in addition to its practical applications. It became a store of value as its market capitalization has swelled to $415 billion, making it the second-largest cryptocurrency behind Bitcoin.
However, Ethereum is capable of far faster transaction speeds. It can also be used in smart contracts, where the payment is automatically “unlocked” upon completion of certain milestones or contractual obligations. Lastly, Ether is fueling the NFT boom we’re currently seeing. Because of these real-world applications, this digital currency likely isn’t going away any time soon.
This Cryptocurrency Continues to Evolve
Ether isn’t sitting still and hoping things continue to work in its favor. Instead, the cryptocurrency continues to evolve. For instance, we now have Ethereum 2.0. That begs the obvious question of, what’s the difference? Essentially, it’s an attempt at improving everything we like about Ethereum.
Ethereum is an older version, whereas Ethereum 2.0 is an upgraded system that is introduced with new ways of operations. Ethereum 2.0 is aimed at improving the speed, and efficiency, and a number of transactions.
Instead of using the Proof of Work method like Ethereum, Ethereum 2.0 uses the Proof of Stake method. Meaning that “validators are used instead of miners to verify and authenticate a transaction,” which is faster and more efficient. It should allow the network to verify up to 10,000 transactions per second.
So why should investors bank on Ethereum?
Its technicals are volatile but still favor the bulls, it has real-world applications and is better than its peers in this regard, and it continues to evolve to meet the market’s needs.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.