Take Your Time Before Buying Ethereum

  • With buzz around its upcoming 2.0 upgrades growing, you may be tempted to dive into Ethereum (ETH-USD) today.
  • However, market volatility in the months ahead could outweigh this.
  • Sit tight, as the opportunity to buy at a more favorable price could arrive in the coming months.
Landscape art with the Ethereum
Source: shutterstock

Like other cryptos, after making a recovery last month, so far this month Ethereum (ETH-USD) has moved lower. The external factors that investors briefly shrugged off during March are once again top of mind. Namely, the prospect of much higher interest rates, as the Federal Reserve tries to bring down inflation.

As this is driving investors out of both growth stocks, as well as crypto (which continues to be highly-correlated to growth stocks), this negative factor will outweigh a key positive factor that may have you wanting to buy in today.

I’m talking about the forthcoming “2.0” upgrades. These upgrades, which include a move from Proof-of-Work to Proof-of-Stake, stand to be a game-changer for this coin, and its blockchain. But given the high chance it could continue to experience a slide in price in the short-term, despite this catalyst? Be patient, and wait for the right moment.

ETH-USD Ethereum $3,012.97

Ethereum, the Upgrades, and What It Means in the Short-Term

There’s much to be excited about when it comes to the above-mentioned upgrades. As my InvestorPlace colleague, Mark Hake, has recently argued, after its switchover to a Proof-of-State protocol kicks off on June 28, the end result could help send it back to higher prices.

Why? Two reasons. First, switching to this new protocol will increase transaction speeds. This will help the Ethereum platform, dominant in the world of decentralized finance (DeFi), maintain its edge over up-and-coming platforms like Cardano (ADA-USD) and Solana (SOL-USD). Second, the switchover will eliminate inflationary supply, a by-product of its existing Proof-of-Work (aka mining-based) system.

I concur that, in time, these upgrades are a positive. They may not make ETH-USD more valuable than Bitcoin (BTC-USD), but as they help stay ahead of the “Ethereum killers” mentioned above, it should help justify a steady move to higher prices in the long-term. That said, that doesn’t mean another drop to much lower prices won’t emerge. Whether before this event, or even right after it.

Instead, I believe the external factors that have knocked it lower since November will continue to outweigh this key positive. At least, over the next few months.

The Best Time to Buy Ethereum

Right now, Ethereum, much like cryptos overall, and other “risk-on” assets overall, is coming off its relief rally. After briefly shrugging off the Fed’s rate hike plans, concerns about it are on the rise once again.

Higher rates are bad news for growth/tech stocks. They put pressure on valuations. Higher interest rates raise the discount rate, making future earnings less valuable today. The big run-up in interest rates could also severely slow down the economy. Or worse, cause a recession. In turn impacting the underlying performance of high-growth companies, along with their valuations.

Yes, the impact of higher rates on growth names may not sound too relevant when it comes to crypto. After all, traditional stock metrics like valuation don’t apply to this asset class. Still, as the correlation between crypto and growth/tech stocks remains high, it could send Ethereum down along with it in the short-term.

This could be as dramatic as a move back to the low-$2000s per coin, which we saw happen during January’s market meltdown. A more severe move lower, such as a drop back to $2,000 per coin, a level not hit since last summer, may not be out of the question, either.

Even if You Have a Long Time Horizon, Wait for a Better Entry Point

In closing, I’m not saying you should necessarily wait for Ethereum to give back most of its 2021 gains before buying. Instead, the key takeaway here is to wait until the next bout of major volatility before deciding to dive in.

The “2.0” upgrades help to make the argument why ETH-USD remains a great crypto to buy-and-hold over the long haul. Yet, as the external factors that have sent it tanking since November have not fully played out, now’s not the time to enter/add to a position.

Instead, wait things out. Even if it seems like the switchover to Proof-of-Stake in a little over two months will fuel a big boost in its coin prices, that’s not for certain. If a continued stock market downturn, which takes crypto down along with it, is playing out, negativity will prevail in the short-term.

With this, wait until the crowd re-enters true “panic mode” before scooping up Ethereum.

On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.


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