Ethereum
Up 70% for the year and on track to hit a new all-time high, is Ethereum a buy?
New Ethereum spot ETFs are on the way. But what impact will they bring to crypto?
During the first five months of 2024, Ethereum (ETH 1.18%) has been one of the best performing major cryptocurrencies. It is now up 70% year to date, which is even better than Bitcoin (CRYPTO: BTC), up 62%. At a price of almost $4,000, Ethereum is close to the all-time high of $4,891 that it reached during the previous crypto rally.
There is more good news. Investors are excited about a new catalyst that they believe could send the crypto skyrocketing. But are they overstating Ethereum’s bullish case?
Spot Ethereum exchange-traded funds (ETFs) are coming
The new catalyst, of course, is the Securities and Exchange Commission’s (SEC) recent change in stance on Ethereum spot ETFs. On May 23, the SEC reversed its previous position and ruled that these ETFs would be allowed to trade on traditional exchanges in the future. So we know they’re coming. But, as of now, no one-time application for an Ethereum ETF has been officially approved by the SEC.
However, the crypto market has turned bullish, based on the assumption that official approvals and market debuts of funds will arrive soon. This helps explain why Ethereum is up 20% in the last 30 days alone. This is a classic case of the market anticipating good news in advance.
But that’s also what worries me. The crypto has already seen a bullish surge in January after the first spot Bitcoin ETFs were approved. This push was primarily based on speculation that Ethereum spot ETFs were coming. We are now seeing a new bullish surge, based on even more speculation.
To me, this is a perfect example of “buy the rumor, sell the information.” Once Ethereum spot ETFs are officially approved and traded, the crypto may not see the huge price surge that many investors are expecting. In fact, Ethereum could decline as investors “sell the news.”
Additionally, almost everyone agrees that Ethereum won’t see anything like the influx of investor money that Bitcoin has seen through its ETFs. At best, Ethereum could see half the inflow of Bitcoin. So be skeptical of anyone who tells you, “Hey, Bitcoin went up 60% after the new Bitcoin spot ETFs were approved, so Ethereum will also go up 60%.”
Reasons to worry about Ethereum
Another point of concern is that the current method used to scale Ethereum to its next stage of growth may not work as well as some had hoped. Ethereum’s main blockchain now leverages layer 2 scaling solutions such as Optimism (CRYPTO: OP), Polygon (CRYPTO: MATIC), and Arbitration (CRYPTO: ARB) to help it work better, cheaper and faster.
But these layer 2 blockchains are in sharp decline this year. Optimism is down 36%, Polygon is down 24% and Arbitrum is down 22%. It’s strange, isn’t it? How can Ethereum be up 70% year over year when the layer 2 blockchains that help it operate more efficiently are down over 20%? At the very least, this is an interesting fact to keep in mind.
Image source: Getty Images.
Finally, there’s the pesky little question of competition. At one time, Ethereum was the clear market leader in its part of the crypto universe and had a huge first-mover advantage. It was the first blockchain platform for smart contracts and has been a pioneer in everything from non-fungible tokens (NFTs) to decentralized finance (DeFi).
Today, it has a growing number of credible rivals, led by figures like Solana (CRYPTO: SOL) and avalanche (CRYPTO: AVAX). Over time, Ethereum is likely to lose market share, even in areas where it currently appears dominant.
How Higher Can Ethereum Go?
The main catalyst at the moment is obviously the imminent arrival of the new Ethereum spot ETFs. Most likely, they will debut before the end of summer, and a growing consensus is that this could lead Ethereum to reach a new all-time high in 2024.
From there, however, the outlook becomes murkier. If you are confident that Ethereum’s fundamentals are nothing to worry about and that it can maintain its market leadership despite a host of new entrants, then you may want to consider buying some .
But I’m taking a wait-and-see approach. From my perspective, the ETF investment thesis is increasingly overblown, and there are many emerging Ethereum rivals that could have much greater upside potential.
Dominique Basulto has positions in Bitcoin, Ethereum, Polygon and Solana. The Motley Fool holds positions and recommends Avalanche, Bitcoin, Ethereum, Polygon and Solana. The Motley Fool has a disclosure policy.