Ethereum plummeted a massive 13 percent on Tuesday night to $4,100, triggering concerns among investors about its immediate future.
This quick Ethereum price drop has led to the 55-day uphill run making a screeching halt. Bulls had forecasted Ethereum value to reach $5,500 last week after it attained a record-high $4,800 a few days back--a rise of more than 900 percent year-on-year.
Currently, ETH stands at $4,319.12, a rise of 2.96 percent in the last 24 hours, as per CoinDesk's real time tracker. Ethereum price predictions see it regain momentum towards $4,500 in the next days.
Factors Behind Ethereum's 13% Crash
Because of this, investors remain confident about Ethereum despite the big Tuesday loss, as they understand that the token's 3.4 percent daily volatility would justify the 10 percent negative price shift, Cointelegraph noted in a report. But there are external factors to the crash, such as the approval of the U.S. Infrastructure Bill on Monday.
The bill necessitates digital asset transactions worth above $10,000 to be reported to the U.S. Internal Revenue Service (IRS). It has not been clear, however, if this will apply to entities or individuals building blockchains and crypto wallets.
Another factor could be the U.S. Securities and Exchange Commission's (SEC) denial of VanEck's spot Bitcoin exchange-traded fund application request. The SEC likewise noted "fraudulent and manipulative acts and practices" in denying the request, together with a lack of transparency on Tether's USDT stablecoin, Cointelegraph added.
Is Ethereum a Good Investment? Pros and Cons You Need to Consider
Because of this, a nagging question remains: is Ethereum a good investment? With all the gains and advantages the coin has, investors should not worry too much, The Motley Fool said in a post.
While investing in cryptocurrencies is risky and highly speculative, which means no one is sure if they would succeed in the long term, analysts have seen Ethereum's potential being one of the most formidable tokens in the cryptocurrency market.
Its blockchain is among the most popular for decentralized applications (dApps), which includes non-fungible tokens (NFTs) and decentralized finance (DeFi). Such dApps need the use of the Ethereum token, called Ether. Because of this, once dApps have been widely adopted, the use of the coin will also grow and in effect, its price would surge further.
Ethereum is also shifting from its proof-of-work (PoW) protocol to one that is proof-of-stake (PoS), which is faster, allowing more transactions per second and less-energy intensive. In addition, Ethereum 2.0 is set for release in 2022 and this upgrade to the blockchain would require 99 percent less energy and even faster transactions. This would allow Ethereum to beat competitors in the crypto space, such as the leading cryptocurrency, Bitcoin, which still utilizes the PoW protocol.
On the other hand, investors should deal with potential downsides of the coin, such as its facing still rivalry from the so-called "Ethereum killers" such as Cardano, which capitalize on the weaknesses of Ether. Cardano uses a PoS mining protocol and accepts dApps in its blockchain. To remain competitive, Ethereum needs to innovate regularly.
And, just like other cryptocurrencies, Ethereum is highly speculative. While Ethereum has strong potential, there are no guarantees that it will still exist in the next decades.
As such, before investing, you need to consider the amount of risk you can tolerate. If an investor is risk-averse, cryptocurrencies are not the right choice. But if you can realistically afford to lose, then Ethereum and other cryptocoins would be a worthy investment, especially in the long run.