Is ETH a good crypto to buy for 2021?

Is ETH a good crypto to buy for 2021?

Bryce      

The future of ethereum wasn’t always so bright. In June 2016, the infamous DAO Hack sent $55 million of ether into hacker’s hands. And a rash of bitcoin clones like bitcoin cash and dogecoin made ethereum look like yet another shiny bauble in a massive cryptocurrency soup.



Source: Data courtesy

But ethereum quickly recovered. To handle the DAO Hack, the ethereum community decided to effectively roll back its blockchain to undo the damage. It regained its #2 position by 2018.

Ethereum holds several technological advantages over its older bitcoin and altcoin siblings. Firstly, the cryptocurrency acts more like a contract than a coin. That makes it more like Alphabet’s Google Wallet or Apple’s Apple Pay, rather than a $100 bill. For instance, an e-commerce buyer might hold ETH in an escrow that automatically releases payment on receipt of goods. Bitcoin, on the other hand, offers no such mechanism.

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Secondly, ethereum solves the thorny problem of speed. While bitcoin takes about 15 minutes to complete a transaction, ETH will do the same in under 15 seconds.

Finally, it has a theoretically unlimited supply, unlike bitcoin’s 21-million-coin cap. That means ETH won’t run into a mining “wall” and run out of coins to reward miners.

Up, Up and Away

That makes ethereum one of my favorite cryptocurrency plays of 2021. With a $132.5 billion market capitalization, the cryptocurrency is still only one-fifth the size of bitcoin. And as adoption spreads on PayPal and other payment processors, the forgotten middle child could quickly catch up to its older brother.

But just like bitcoin, there’s a wrinkle to the ethereum story. Unlike gold or bonds, ethereum is NOT a safe-haven asset. Instead, it’s a “risk-on” asset that tends to rise when times are good and fall otherwise.

The data backs this up. The correlation between ethereum and the S&P 500 now sits at 64%, meaning that stocks explain almost two-thirds of ethereum’s monthly returns.

Not convinced? Consider March 2020, the month the stock market fell out of bed. As the stock market tumbled 30% on coronavirus fears, cryptocurrencies provided no cushion. In a matter of weeks, bitcoin, ethereum, and other cryptocurrencies lost over half of their value. (The same pattern happened during the December 2018 market wobble.)

How High Can Ethereum Go?

Make no mistake: Ethereum is as volatile as a moody teenager. $10,000 invested in January 2018 would have melted to $830 in a year. But the same $10,000 invested in January 2020 would have rocketed to $85,000. Without an underlying hard asset, ethereum’s value has no basis in the real world.

That makes the cryptocurrency’s valuation more of a popularity contest than a technical exercise, at least in the short term. The cryptocurrency could easily double to $2,500 in 2021 if more users keep jumping on board. But it could also crash to $500 if a major hack shakes investor confidence. (More likely, a 25% loss would cause investors to panic-sell, sparking a self-fulfilling downward cycle.)

Ethereum prices also tend to reverse course in the near term. Since 2015, ethereum returns have doubled-back almost 60% of the time, when a winning month gets followed by a losing one and vice versa. Even in its 2018 peak, the coin never notched more than two consecutive months of gains.


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