Is ETH A Good Investment? Pros And Cons Of Ethereum Investment

Ethereum is a decentralized blockchain technology that creates a peer-to-peer network for securely executing and verifying smart contract code.

The Ether (ETH) coin of the Ethereum network began in 2015 at less than $3 and has reached a record high of $4,891 by November 2021. Both BTC and ETH were trading for over $43,000 and $3,300, respectively, at the time of writing, significantly below their heights but well above where they were just a few years earlier.

What is Ethereum?

Ethereum is a decentralized blockchain technology that creates a peer-to-peer network for securely executing and verifying smart contract code. Participants can transact with one another without relying on a trusted central authority. Participants have full ownership and visibility of transaction data since transaction records are immutable, verifiable, and securely distributed across the network.

User-created Ethereum accounts are used to send and receive transactions. As a cost of processing transactions on the web, a sender must sign transactions and spend Ether, Ethereum’s native coin.

Bitcoin basics

Bitcoin was first introduced in January of 2009. It introduced a revolutionary concept laid forth in a white paper by the enigmatic Satoshi Nakamoto: bitcoin promises to be an online currency that is secure and decentralized, unlike government-issued currencies. There are no actual bitcoins; instead, balances are linked to a cryptographically secured public ledger.

Although bitcoin was not the first attempt at an online currency of this type, it was the most successful in its early stages. It has been renowned as a forerunner in some way to practically all cryptocurrencies established over the last decade.

Over time, authorities and political agencies have recognized the concept of a virtual, decentralized currency. Despite being routinely analyzed and disputed, bitcoin has managed to carve out a niche for itself and continues to co-exist with the financial system despite not being a formally recognized medium of payment or store of value.

Key differences between Ethereum and Bitcoin

While distributed ledgers and cryptography are at the heart of both the Bitcoin and Ethereum networks, the two are vastly different in technology. Transactions on the Ethereum network, for example, may include executable code, but data attached to Bitcoin network transactions are often used merely to keep track of transactions. Block time (an ether transaction is completed in seconds, compared to minutes for bitcoin) and the algorithms they use (SHA-256 for Bitcoin and Ethash for Ethereum) are also notable distinctions.

Both Bitcoin and Ethereum employ the proof of work (PoW) consensus mechanism, which allows the nodes of the respective networks to agree on the status of all information recorded on their blockchains and prevents certain forms of economic attacks on the networks. As part of its Eth2 upgrade, Ethereum will switch to a different mechanism called proof of stake (PoS) in 2022. This upgrade will make Ethereum more scalable, secure, and long-lasting. Because of the processing power required, one of the most common criticisms of proof of work is that it consumes a lot of energy. Proof of stake replaces miners with validators, who stake their bitcoin holdings to activate the ability to send and receive payments, making it less energy-intensive.

But, more crucially, the Bitcoin and Ethereum networks are not the same in terms of their overall goals. While bitcoin was founded as a substitute for national currencies and sought to be a means of exchange and a store of value, Ethereum was designed as a platform for immutable, programmable contracts and applications.

Although BTC and ETH are both digital currencies, the fundamental goal of Ether is to facilitate and monetize the Ethereum smart contract and dApp platform rather than to establish itself as an alternative monetary system.

Ethereum is another example of a blockchain that supports the Bitcoin network but does not compete in theory. However, Ether’s success has forced it to compete with all cryptocurrencies, particularly from the standpoint of traders. Since its debut in mid-2015, Ether has ranked second to bitcoin in market capitalization for most of its existence.

The Ethereum ecosystem is exploding, thanks to the growing popularity of its decentralized applications (dApps) in fields including finance (decentralized finance, or DeFi apps), arts and collectibles (non-fungible tokens, or NFTs), gaming, and technology. As a result, ETH increased by 510 percent in 2021 (as of November 29, 2021), compared to a 93 percent increase in BTC. Whereas ETH’s market cap was barely a tenth of BTC’s in January 2020, by November 2021, ETH’s market cap of $528 billion was roughly half of BTC’s $1.08 trillion.

Should I buy Ethereum or Bitcoin?

Both Bitcoin and Ethereum carry similar dangers, and their future growth is highly speculative. Most experts agree that as the top two cryptos on the market, both are solid choices if you’re just getting started with crypto investing. Others argue that it’s better to split the difference and invest in both.

While Bitcoin is more well-known, others argue that Ethereum’s technological potential outweighs Bitcoin’s.

“Given that products like NFTs are part of the Ethereum blockchain, [I] would probably invest in Ethereum,” says Ryan Sterling, a CFP and founder of Future You Wealth. “Also, Ethereum appears to be gaining traction and acceptability.”

According to Vrishin Subramaniam, founder and financial advisor at CapitalWe, a forthcoming Ethereum network update could bring greater attention to Ethereum in the coming months, which is why he would now choose Ethereum. He does, however, see both cryptocurrencies‘ promise. “We’re still early in the adoption curve, but I believe Bitcoin and Ethereum will maintain their worth.” “I consider Bitcoin to be the more mainstream of the two, whereas Ethereum is the more utilitarian,” Subramaniam explains.

Then some argue, “Why do you have to choose?”

“I wouldn’t force the question of ‘Which one?’ if given a choice between the two,” says Theresa Morrison, a CFP at the Beckett Collective.

“I would invest in both,” says Jeremy Schneider, the creator behind Personal Finance Club on Instagram.

How to invest in both Bitcoin and Ethereum

Even if you decide to purchase Bitcoin and Ethereum, your personal financial goals and cryptocurrency knowledge can influence how much money you put into either coin. If you’re going to share your money, Subramaniam suggests a 60/40 split, while Sterling suggests a 50/50 split.

According to Schneider, you can also use a weighted market cap approach to invest, which involves putting a proportional amount of money into each asset based on its market cap. The total market value of all the coins that have been mined is referred to as the market cap in cryptocurrency. Based on their current market prices, if you start with $100 and wish to invest in Bitcoin and Ethereum, $71 in Bitcoin and $29 in Ethereum.

If you wish to diversify into more coins in the future, Schneider suggests following this technique. For example, depending on market cap, a ten-coin $100 portfolio would look like this:

  • Bitcoin (BTC) 54.4%
  • Ethereum (ETH) 21.9%
  • Tether (USDT) 4.9%
  • Binance Coin (BNB) 4.3%
  • Cardano (ADA) 3.7%
  • Dogecoin (DOGE) 3.2%
  • XRP (XRP) 3.1%
  • USD Coin (USDC) 1.8%
  • Polkadot (DOT) 1.6%
  • Uniswap (UNI) 1.0%

Experts advise against investing too much of your wealth in crypto assets, regardless of which route you take. In general, you should limit your crypto investments to less than 5% of your overall portfolio.

Should I be considering any other cryptos?

According to the experts we spoke with, definitely not a novice. Altcoins are much more volatile than Bitcoin and Ethereum, which are already volatile.

According to Nate Nieri, CFP, and CEO of Modern Money Management, “it’s like dabbling with penny stocks.” “For every victor, there is a slew of losers.” “Anyone’s estimate is as good as yours.”

“I’m exclusively interested in Bitcoin and Ethereum,” Sterling explains. “Except for Bitcoin and Ethereum, I believe most of these cryptocurrencies will be worthless in 20 years, similar to the dot-com boom.”

Top 10 cryptocurrencies in February 2022

There are thousands of different cryptocurrencies, ranging from Bitcoin and Ethereum to Dogecoin and Tether, making it difficult to get started in the world of crypto. These are the top 10 cryptocurrencies by market capitalization, or the total worth of all coins currently in circulation, to help you gain your bearings.

  1. Bitcoin (BTC)
  • Market cap: Over $730 billion

Bitcoin (BTC) is the first cryptocurrency created in 2009 under Satoshi Nakamoto’s pseudonym. BTC, like most cryptocurrencies, is based on a blockchain, which is a distributed ledger that logs transactions across a network of thousands of computers. Bitcoin is maintained secure and safe from fraudsters because updates to the distributed ledgers must be confirmed by solving a cryptographic problem, a process known as proof of work.

Bitcoin’s value has soared as it has grown in popularity. In May 2016, the price of Bitcoin was around $500. The cost of a single Bitcoin was above $38,000 on February 1, 2022. This equates to a 7,600% increase.

     2. Ethereum (ETH)

  • Market cap: Over $327 billion

Ethereum is a favorite of programmers because of its potential applications, such as smart contracts that run automatically when conditions are satisfied and non-fungible tokens. Ethereum is both a cryptocurrency and a blockchain platform (NFTs).

Ethereum has also exploded in popularity. Its price increased about 25,000 percent from April 2016 to February 2022, from around $11 to over $2,700.

   3. Tether (USDT)

  • Market cap: Over $78 billion

Tether is a stable coin, which means it is backed by fiat currencies such as the U.S. dollar and the Euro and has a theoretically equal value to one of those denominations. Tether’s value is intended to be more consistent than other cryptocurrencies, which is why it’s appreciated by investors who are frightened of other coins’ excessive volatility.

   4. Binance Coin (BNB)

  • Market cap: Over $63 billion

Binance Coin is a cryptocurrency that may be used to trade and pay fees on Binance, one of the world’s largest cryptocurrency exchanges.

Binance Coin has grown beyond simply conducting deals on Binance’s exchange platform since its introduction in 2017. It can now be used for trade, payment processing, and even travel reservations. It can also be exchanged or traded for other cryptocurrencies like Ethereum or Bitcoin.

It was only $0.10 in 2017; on February 1, 2022, it had climbed to nearly $377, a growth of around 377,000 percent.

   5 .U.S. Dollar Coin (USDC)

  • Market cap: Over $50 billion

USD Coin (USDC), like Tether, is a stablecoin, which means it’s backed by U.S. dollars and aspires for a 1 USD to 1 USDC ratio. USDC is based on Ethereum, and it may be used to make international transactions.

  6. Cardano (ADA)

  • Market cap: Over $35 billion

Cardano is renowned for being one of the first crypto projects that use proof-of-stake validation. By removing the competitive, problem-solving part of transaction verification found in platforms like Bitcoin, this solution reduces transaction time, energy consumption, and environmental effect. Cardano functions similarly to Ethereum in that it uses ADA, its native coin, to enable smart contracts and decentralized apps.

Cardano’s ADA token has grown slowly compared to other prominent crypto coins. The price of ADA in 2017 was $0.02. Its price rose to $1.05. on February 1, 2022. This is a 5,150 percent gain.

  7. Solana (SOL)

  • Market cap: Over $33.5 billion

Solana is a cryptocurrency created to fuel decentralized finance (DeFi), decentralized apps (DApps), and smart contracts. It uses a hybrid proof-of-stake and proof-of-history mechanism to conduct transactions rapidly and securely. SOL, Solana’s native cryptocurrency, powers the platform.

SOL’s price was $0.77 when it was first introduced in 2020. Its price had risen about 13,000 percent by February 1, 2022, to around $100.

  8.  XRP (XRP)

  • Market cap: Over $29 billion

XRP, a digital technology and payment processing company founded by some of the same people as Ripple, can be used on that network to ease the exchange of many currency kinds, including fiat currencies and other major cryptocurrencies.

The price of XRP was $0.006 at the start of 2017. Its price had risen more than 10,000 percent to $0.62 as of February 1, 2022.

  9.  Terra (LUNA)

  • Market cap: Over $21 billion

Terra is a stable coin blockchain payment network that works by maintaining a balance between two types of cryptocurrencies. TerraUSD and other terra-backed stable coins are linked to the value of actual currencies. Luna, their counterbalance, is used to power the Terra platform and manufacture new Terra stablecoins.

Luna stablecoins and Terra stablecoins work together based on supply and demand: Users are encouraged to burn their Luna to create more Terra stablecoins when the price of a stablecoin climbs above its value associated with the currency. When the value of the Luna stablecoin dips compared to the base currency, users are encouraged to burn their Terra stablecoins to manufacture more Luna. As the Terra platforms become more popular, Luna’s worth rises.

From January 3, 2021, when its price was $0.64, Luna has risen almost 8,000% to $51.39 through the end of the year,

  10.  Polkadot (DOT)

  • Market cap: Over $19 billion

Polkadot (and its namesake crypto) intends to unify them by building a cryptocurrency network that connects the multiple blockchains so they may work together. Since Polkadot’s inception in 2020, this integration has sparked significant growth and may transform how cryptocurrencies are maintained.

Its price increased by 565 percent from $2.93 to $19.49 between September 2020 and February 1, 2022.

*As of February 1, 2022, market capitalization and pricing are current.

How to buy Ethereum

Investing in Ethereum may be easier than you think. Here’s how to get started in just five steps:

  1. Determine your level of risk

There’s no avoiding the fact that purchasing Ethereum is a risk. While all investments carry some risk, cryptocurrencies are particularly susceptible to price changes. Consider the influence a few hundred characters can have on cryptocurrency pricing: The value of Bitcoin dropped 15% after Elon Musk announced that Tesla would no longer accept Bitcoin as payment.

Although Ether has had some fantastic returns in the past, it has also experienced some big crashes, often in a matter of minutes. It dropped from about $4,000 per coin in May 2021 to less than $1,800 per coin in June 2021. If you bought at the peak, you’d be sitting on half the value in less than a month. That’s a lot of unpredictability.

That’s why, before buying Ether, you should think about your risk tolerance as well as the diversification and stability of the rest of your investment portfolio. Experts advise never investing more in cryptocurrency than you can afford to lose.

  2. Choose a crypto exchange

Purchasing Ether with your current brokerage account is a little more involved than buying equities or mutual funds. Cryptocurrencies aren’t traded on major stock exchanges like the NYSE, and many brokerages don’t provide crypto investment.

You must first open an account with a crypto exchange to purchase cryptocurrency. In terms of functionality, it’s similar to the brokerage systems you’re probably more familiar with: Buyers and sellers can trade fiat currencies like dollars for cryptocurrencies like Ethereum, Bitcoin, and Dogecoin on cryptocurrency exchanges. If you don’t already have one in mind, check out our list of the best cryptocurrency exchanges to pick the appropriate one for you. While certain exchanges’ trading platforms can be complicated, most have a straightforward buying interface for beginners; however, they may charge higher costs than their trading platform.

Here are a few crucial points: Make sure the exchange you choose has a crypto wallet where you may store your funds. The vast majority of them do, but if yours doesn’t, you’ll have to acquire one.

You can also utilize a program like Robinhood or Cash App if you’re a complete beginner. This will make purchasing crypto much easier for you, but there is a catch: it comes at a price: You can’t take your Ethereum investment and put it in a third-party wallet or use it to pay for things online. If you buy crypto on one of these streamlined platforms, your coin can only be traded on that platform.

As a result, you’d have to cash out of that platform and then repurchase it on a cryptocurrency exchange to keep it in a separate wallet.

 3.  Fund your account

You must first fund your account before buying Ethereum on a cryptocurrency exchange. You’ll most likely deposit funds from a bank account, such as your checking or savings account. You can also make wire transfers, utilize a debit card, or make a PayPal deposit in most cases.

Examine the crypto exchange’s fees when deciding on a funding option; they vary depending on the method. Wire transfers, for example, are accessible on Gemini, while debit card transfers are charged a 3.49 percent premium.

One word of caution: some services allow you to purchase cryptocurrencies with your credit card. While this may appear appealing, bitcoin purchases are typically treated as cash advances by credit card providers. Depending on the card you have, you may have to pay a higher interest rate and a cash advance fee on top of the crypto exchange fees.

 4.  Buy Ethereum

Market hours limit your ability to acquire stocks, mutual funds, and exchange-traded funds (ETFs). Nasdaq, for example, is open from 9:30 a.m. to 4:00 p.m. E.T., and it is closed on weekends and some holidays.

Ethereum and other cryptocurrencies operate differently: You can purchase and sell them at any time because they’re decentralized currencies.

To acquire Ethereum, type its ticker symbol—ETH—in your exchange’s “buy” area and the amount you want to spend. You can buy a fraction of an Ethereum token if you don’t want to buy a whole coin or don’t have enough money in your account to buy one. For example, if Ethereum is priced at $2,000 and you invest $100, you will receive 5% of an Ether token. This is just like when you purchase a fractional share of stock.

 5.  Store your Ethereum

After your Ethereum purchase has been completed, you must store your cryptocurrency. While some platforms will store it for you, some people choose to keep their investments on their own to lessen the risk of losing it to a hack. This is logical, but it’s also worth noting that most big exchanges guarantee their clients’ holdings and frequently store most of their funds offline to avoid colossal theft. Furthermore, in the past, hacked exchanges have always compensated for any losses.

However, if you want to keep your crypto safe, you can move it to one of two types of third-party wallets:

  • Hot wallet: A hot wallet is an online wallet that can be accessed through a computer or smartphone. They’re convenient and frequently given at no additional cost by cryptocurrency exchange platforms; however, you can use your own if you’d rather keep your crypto off the exchange. They are, however, more vulnerable to security breaches because they are still connected to the internet.
  • Cold wallet: Meanwhile, cold wallets are standalone devices that are not connected to the internet. They usually cost between $50 to $200 depending on the type, though even more expensive variants are available. While cold wallets are less convenient than hot wallets because you must connect them to the internet each time you want to access your cryptocurrency, they are safer. They may make sense if you hold a large amount of Ethereum or other cryptocurrencies.

Selling Ethereum

Return to your crypto exchange and enter the amount you wish to sell to sell your Ethereum.

However, if you’re selling a large amount of cryptocurrency, you should see a tax professional. Crypto is taxable from the federal government’s perspective, notwithstanding its decentralized nature. The profits from the sale are usually subject to capital gains taxes, which can significantly impact how much money you owe the IRS at tax time.

Should I buy Ethereum?

Ethereum is a very popular cryptocurrency, with over 116 billion coins in circulation. However, just because it’s a well-known cryptocurrency doesn’t imply it’s good for you.

Before investing in a volatile asset like Ether, make sure you’ve done your homework and that your funds are in excellent shape. You should, in theory, have a significant emergency fund, be fully funded in your retirement accounts, and be debt-free. Even if you can check all of those boxes, it’s still a good idea to diversify your portfolio, so Ethereum and other cryptocurrencies should only account for a small fraction of your investments.

Investing in Ethereum Stock

Ethereum (CRYPTO: ETH) is a decentralized, open-source platform that underpins most of the cryptocurrency industry. Ethereum’s technology is used in everything from decentralized finance (DeFi) applications to non-fungible tokens (NFTs) to enterprise blockchain solutions. As a result, Ethereum’s native token, Ether, has surpassed Bitcoin as the second-largest cryptocurrency (CRYPTO: BTC).

There are various methods to profit from Ethereum’s expanding popularity. The most straightforward way is to purchase Ethereum. This poses the most significant risk and the most extensive possible returns due to its extraordinary volatility. Ethereum stocks are a less volatile option. Managed funds that invest in Ethereum on your behalf and organizations with significant exposure to Ethereum technology are examples.

Top Ethereum stocks

Here are the best stocks to buy if you want to add Ethereum exposure to your portfolio:

  1. Grayscale Ethereum Trust

The Grayscale Ethereum Trust (OTC: ETHE) is a managed fund that allows you to add Ethereum to your brokerage account quickly and easily. A predetermined quantity of Ether tokens backs each share (approximately 0.01 Ether per share).

Keep in mind that the fund’s share price is frequently less than the value of Ethereum at the current exchange rate. Grayscale also charges a 2.5 percent yearly management fee, which is relatively high. Because shareholders cannot exchange their shares for Ethereum, there is no chance for price arbitrage.

    2. Bitwise Ethereum fund

Bitwise is the largest crypto index fund manager in the world. It provides managed funds for various cryptocurrencies, including the Bitwise Ethereum Fund.

A minimum commitment of $25,000 is required to participate in this fund, which is only open to authorized investors. The fund’s managers aim to reduce transaction costs by storing its Ethereum in cold crypto storage, making it a cost-effective and secure Ethereum stock. A 1.5 percent yearly management fee is charged.

If you’re looking for a more broad digital asset portfolio, look into the Bitwise 10 Crypto Index Fund (OTC: BITW), which holds a mix of various popular cryptocurrencies.

   3.  Coinbase

Coinbase (NASDAQ: COIN) is the United States’ largest cryptocurrency exchange. The company charges buyers and sellers of various cryptocurrencies, including Ethereum, transaction fees. Many of the other cryptocurrencies traded on Coinbase, in addition to Ethereum, utilize the Ethereum blockchain.

Coinbase has seen explosive growth as more people turn to cryptocurrency, making it one of the most profitable cryptocurrency stocks. Monthly users increased by 487 percent from 1.5 million in the second quarter of 2020 to 8.8 million a year later. Over the same period, net revenue increased by more than 1,000 percent, from $178 million to $2.03 billion.

   4. Staked ETH Trust

Ethereum is currently undergoing an upgrade to Ethereum 2.0. Switching to a proof-of-stake model to validate transactions is part of that process. Ether token holders can stake crypto in this model to be used to validate transactions and receive rewards.

The Staked ETH Trust is the first regular investment vehicle to provide Ethereum exposure and staking rewards to shareholders. Accredited investors can invest in the fund through a private placement. It has a $25,000 minimum investment requirement and a 1% expense ratio.

   5.  HIVE Blockchain

HIVE Blockchain (TSXV: HIVE) is a company that specializes in bitcoin mining. It mines cryptocurrency using green energy facilities, using computational power to validate transactions and collect incentives. Bitcoin, Ethereum, and Ethereum Classic are the three cryptocurrencies it currently mines (CRYPTO: ETC).

It’s worth mentioning that, while HIVE has previously focused on Ethereum, this is likely to alter in the future. The cryptocurrency will move away from the proof-of-work architecture and Ethereum mining it has been using to validate transactions as it upgrades to Ethereum 2.0. It is switching to a proof-of-stake approach that does not include crypto mining.

For the time being, HIVE is a technique to obtain Ethereum exposure, but once Ethereum 2.0 is upgraded, it will shift its focus to other proof-of-work cryptocurrencies.

   6.  Robinhood Markets

Robinhood Markets (NASDAQ: HOOD) is well known for being the first discount broker to offer commission-free trading. It has been ahead of the game in other ways as well. It began selling Bitcoin and Ethereum crypto trading in 2018.

Since then, the broker has added a few other cryptocurrencies to its portfolio, including Litecoin (CRYPTO: LTC) and Bitcoin Cash (CRYPTO: BCH) (CRYPTO: BCH). While Robinhood isn’t an entire cryptocurrency investment, it does provide you with some Ethereum exposure.

The bottom line

There are various methods to profit from Ethereum’s expanding popularity. The most accessible option is to buy Ethereum. This poses the most risk and the greatest possible return due to its extraordinary volatility. Ethereum stocks are a less volatile option. Examples include companies that have a lot of experience with Ethereum technology and managed funds that invest in Ethereum on your behalf.