The 2018 peak of Ethereum was followed by the initial coin offering (ICO) crackdown that caused a collapse across crypto. Ethereum itself avoided regulatory ramifications, but billions of dollars were lost in the meantime.
On the first day of 2018, Ethereum (ETH 6.02%) traded for $772.35 per token. Since then, its value fell below $100, skyrocketed to over $4,500, and then fallen below $1,000 before climbing to its recent levels above $1,500n. This shows how digital assets have been able to post solid long-term gains, but where will Ethereum go from here?
Why Ethereum is moving higher
Momentum can’t be undersold in the crypto market. A big reason Ethereum and other tokens have gained value in the last few years has been momentum trading during the pandemic, which correlated with higher values for growth stocks as well. It’s no coincidence that these assets rose and fell together over the last few years.
What’s more sustainable long-term is Ethereum’s smart contract capability, which has attracted a critical mass of developers and venture capital funding. Coinbase (COIN 12.35%), MetaMask, and OpenSea were just a few of the companies working to make Ethereum more usable. A16Z estimates that by 2022 there were 4,000 developers building on Ethereum, at least four times more than Bitcoin (BTC 3.34%) or Solana (SOL 6.55%).
Not only are developers building on Ethereum, but the blockchain itself has also gone through some major changes.
PoW to PoS and other upgrades
In September 2022, Ethereum completed an upgrade that changed the consensus mechanism for the blockchain from proof-of-work (PoS) to proof-of-stake (PoS), which reduced energy consumption by about 99%. But there are more upgrades in store.
“The Surge” is expected to improve the scalability of the blockchain and Layer-2 crypto projects built on top of Ethereum, “The Verge” introduces Verkle trees, “The Purge” will eliminate historical data and technical debt on the blockchain, and “The Splurge” will add miscellaneous upgrades.
When completed (which could take many years), the blockchain should be even faster, cheaper, and more user and developer friendly. This could be the start of the next bull run for Ethereum.
Competition is coming
The bad news for Ethereum is that it’s not the only game in town anymore. Solana has a similar number of users and is a much faster and cheaper blockchain. That’s attracted many developers and non-fungible token (NFT) projects, in addition to decentralized finance platforms.
There are many other blockchains that have seen Ethereum’s strengths and weaknesses and tried to improve on them. The cost challenge will continue to be Ethereum’s pain point for the foreseeable future. It costs multiple dollars to make normal transactions on Ethereum, which makes the blockchain unusable for small financial transactions or even buying low-cost NFTs.
This will be the biggest challenge in Ethereum’s future. Developers need to make the blockchain faster and cheaper, and we’ve seen it takes a long time to make upgrades on Ethereum.
A profitable investment
As I’m writing, Ethereum is trading for $1,552.26, which means a $1,000 investment in the cryptocurrency at the start of 2018 would be worth $2,009.76 today. The ride has been wild, but this has been a profitable investment over the last five years. If upgrades happen quickly and blockchain adoption grows, the next five years could be profitable as well.
Travis Hoium has positions in Coinbase Global, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Coinbase Global, Ethereum, and Solana. The Motley Fool has a disclosure policy.