Ethereum (CCC:ETH-USD) is off to a rough start, along with the rest of the crypto industry. ETH-USD is down more than 35% month-to-date amidst a bearish crypto market. Similar to other cryptocurrencies, Ethereum has been volatile, but historically it’s favored the bulls.
Regardless of the current hiccups, Ethereum is in a pole position to capture the rapid user adoption in its sector. It is one of the most robust and secure protocols with remarkable flexibility to facilitate innovation.
Moreover, it boasts one of the most extensive use-cases in one of blockchain technology’s most profitable growth areas. Ethereum was the first programmable digital asset and hosts more applications than any network. Additionally, it’s the network that has the most money locked in at this time.
Additionally, Ethereum’s issues with limited throughput and higher transaction costs will be mitigated with the roll-out of ETH 2.0. Its development team has identified several aspects to address in its roadmap to solidify crypto’s positioning further.
Regulatory roadblocks concern the crypto industry and are likely to impact Ethereum’s growth runway. If these issues can be marginalized, we could see an even better year for ETH-USD than last year.
Why is the Crypto Market Down?
In the past few months, market pundits have been trying to make sense of the crypto bloodbath. The market has shed billions of dollars in market capitalization. Perhaps the most obvious reason could be the rising inflation in the U.S., which has been the highest in over three decades.
Consequently, the Federal Reserve is pulling back on its stimulus measures and will potentially raise interest rates in a few months. Moreover, the omicron variant also has people looking for low-risk investments to place their bets on.
Furthermore, there’s also the belief that Bitcoin (CCC:BTC-USD)seems to be moving in line with the equity market. With the widespread investments from ETFs and institutional investors last year, BTC-USD is perhaps more intertwined with Wall Street.
The regulatory troubles aren’t helping the crypto cause either. A report from the Russian Central Bank recently surfaced calling for a ban on crypto trading and mining. The bank compared cryptocurrencies such as Bitcoin to pyramid schemes. Russia is not the first country to plan cryptocurrencies and certainly wouldn’t be the last.
ETH 2.0 Holds The Key
This year, the bull case for Ethereum hinges on its much-talked-about transition to a proof-of-stake protocol. The software makeover is a massive transformation for Ethereum, which will likely result in skyrocketing speeds and substantially lower fees across the network.
Following the update, it is likely to become a more “eco-friendly” blockchain. Moreover, the network houses multiple DeFi, NFT, and other projects which will benefit immensely from ETH 2.0.
However, the delays in its transition have investors fidgety over Ethereum’s performance this year. The update was initially supposed to happen in 2019, but the phase has been pushed back considerably to June this year. Any delay could potentially erode investor value.
Moreover, some of its rivals, such as Solana (CCC:SOL-USD), are gaining ground against it in the meantime. If it can effectively transition to a proof of stake protocol this year, it could claw back the lost market share from some of its peers.
Ethereum has been of the hottest cryptocurrencies in 2021 but is off to a scratchy start this year. The crypto market has taken a hammering due to various factors, which has hurt investor sentiment for even the more stable digital assets.
However, I feel these temporary roadblocks will not stop ETH-USD from reaching new heights this year with its 2.0 update. Hence, it’s an ideal time to pick the crypto stalwart on the dip.
On the date of publication, Muslim Farooque held a LONG position in SOLANA AND ETHEREUM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.