Ethereum has been one of the more intriguing investments of 2020. The cryptocurrency (ETH) has seen tremendous growth over the past five years – rising by an incredible 277% per year – crushing its main rival Bitcoin by 155% per year over that period.
In 2020, Ethereum rose from $129.89 on January 1 to trade at $379.48 (October 18) – an increase of 192%. Ethereum is easily the second most popular cryptocurrency in terms of size ($43B market cap) and trading volume ($9B traded per day).
The explosive growth in Ethereum stock price has attracted new investors, most of whom have been rewarded handsomely with a multi-bagger performance.
In addition to its nearly meteoric rise in price, Ethereum is also planning to launch Ethereum 2.0 (Eth2) later this year, a platform that is expected to reduce energy consumption, give the network more processing power and speed, and increase its security.
Indeed, the highly anticipated and long-awaited Ethereum 2.0 has led to a renewed interest in ETH from investors. The price of Ethereum soared to $480 on September 1, more than doubling its price in just two months before settling down to its current $380 price range:
Although Bitcoin is much larger in terms of market cap ($216B) and trading volume ($23B per day), Ethereum’s stock price tends to move in lockstep with that of Bitcoin. That means the two cryptocurrencies seem to be correlated and their price movements rise and fall together
That’s true, even though Bitcoin has underperformed Ethereum as an investment both YTD and over the past five years.
The same correlation is not found in other cryptocurrencies such as Ripple (XRP), which has increased by 26.32% YTD, and Litecoin (LTC), which has grown by 14.83% so far this year.
The key takeaway from the correlation in price may be that Ethereum not only benefits from growing speculation and demand for Bitcoin, but it also has its own following of investors who believe in the future of Ethereum’s decentralized platform.
Ethereum Stock Price History
Ethereum launched with its ICO in 2014 and early trading history pegged the value of one coin at 90 cents (August 2015). ETH stock price rose to $10 in March 2016, roughly where it remained until its glorious ride in 2017. From January 9th, 2017 to January 9th, 2018, the price of Ethereum rose from $10 to $1,405. That’s an almost unfathomable 13,950% return.
To put that in perspective, if you would have invested $1,000 in Ethereum at the beginning of January 2017 and sold at its peak one year later you would have $140,500. That’s a 140-bagger!
Now, it’s hard not to look at the ETH price chart and see the rollercoaster ride up and subsequent crash back down to earth. It’s true when you fast-forward one more year to January 2019 the price of Ethereum plummeted to $149 – a return of (-89.40%).
Chalk this up to the correlation with Bitcoin and the speculative euphoria that swept up ordinary investors into cryptocurrency trading. That bubble peaked and then burst in early 2018, with late-stage investors losing most of their initial investment.
Ethereum price has stabilized over the last 21 months – at least for a cryptocurrency. With ETH now trading at $379, investors are no doubt wondering what’s next for Ethereum as an investment? Will its stock price make another run at $1,000? Some experts predict it could reach that level as early as the end of 2020, or early 2021.
More importantly, Ethereum’s future investment returns will hinge on the launch of Ethereum 2.0 (Eth2). Remember, more than just a form of digital money (like Bitcoin), Ethereum is a platform that allows users to leverage its blockchain technology to create smart contracts, run decentralized applications (DApps), build and play games, and even create other cryptocurrencies.
Unlike Bitcoin, there is no hard limit to the number of Ether that can be produced. The total supply of Ether is around 110 million with mining increasing its supply by about 10% a year. As Ethereum moves towards the launch of its 2.0 platform, it aims to be greener by transitioning to a proof of stake scheme rather than a proof of work scheme that relies less on mining and more on a concept called foraging and validating. Less mining means less computer power being generated to try and solve complex algorithms. Proof of stake is also expected to reduce the inflation rate of the Ether supply to around 1.5% to 2% per year.
The Last Word
We’re still in the early stages of cryptocurrency and decentralized platforms like Ethereum. That’s an exciting place to be for investors who may still be at the forefront of a potentially lucrative and game-changing technology.
Even though Ethereum prices have already experienced massive growth (including a major boom & bust cycle), the platform is oozing with potential and possibilities for companies, developers, and investors alike.
Investors looking to speculate on Ethereum would be wise to do so on a secure exchange or platform. There’s potential for fraudsters to use Ethereum to run Ponzi schemes and other types of fraud. The Wealthsimple Crypto trading platform allows investors to buy and sell Ethereum (and Bitcoin) without any commissions or fees. While users don’t hold the digital coins directly through a hot or cold wallet, the cryptocurrency is stored by Gemini Trust Company, a regulated crypto custodian with $200M in cold storage insurance coverage.
Finally, investing in cryptocurrency should be seen as highly speculative and incredibly volatile. That means it should not make up more than 5% or so of your investment portfolio. Don’t invest any more than you’re willing to lose, since there’s no guaranteed that the Ethereum stock price will move any higher than it is today.
Where do you see the price of Ethereum headed? Do you like its prospects over other cryptocurrencies like Bitcoin? Let us know in the comments below.