Cryptocurrency Market Crash: Is Ethereum a Good Buy Now?

Seasoned cryptocurrency investors expect volatility. It is the price of admission to participate in this emerging industry. However, it is never a good idea to lose money, and many popular cryptocurrencies have been taking a beating lately. In fact, the cryptocurrency market as a whole is down 30% from its high in November 2021.

This isn’t the first time the market has crashed, and I doubt it will be the last. But every dip in the past has been a buying opportunity. Ethereum (CRYPTO: ETH) It remains the second most valuable cryptocurrency, but it is currently trading 30% below its all-time high. Is it a good time to buy?

Here’s what you should know.

The most popular programmable blockchain

Ethereum is a programmable blockchain that is powered by the Ether token. unlike Bitcoin The blockchain, which serves only as a record of electronic transactions, Ethereum also supports smart contracts (like computer software). This technology is the key to decentralized applications (dApps), which are software that resides on a peer-to-peer network rather than on the corporate entity’s central servers.

Like other software, dApps can be anything from social media and file storage solutions to decentralized finance (DeFi) products. Most importantly, since dApps are outside the control of any one authority, they prevent censorship and protect user privacy. In addition, DeFi products – dApps that allow users to borrow, save and earn interest without banks or other institutions – make financial services easier and more efficient.

In 2015, Ethereum debuted as the first programmable blockchain, and since then it has invested in this feature into a more fundamental feature. Today, the platform has over 2,900 dApps and $151 billion invested in DeFi products. In other words, Ethereum accounts for 75% of all dApps and 62% of all DeFi investments, making it the most popular programmable blockchain by a wide margin.

Image source: Getty Images.

A solution to the scalability problem

Unfortunately, this popularity created a problem. As more users make transactions on the platform, network congestion has caused slower speeds and higher fees. Transaction fees have jumped 750% over the past six months. This problem indicates a lack of scalability.

for context, Visa It regularly processes 1,700 transactions per second (TPS), and its payments platform is theoretically capable of 24,000 TPS. In comparison, Ethereum can only manage 30 TPS. If left unchecked, this lower production will continue to drive fees higher, and eventually, you will lose Ethereum due to its exorbitant fees.

Fortunately, the Ethereum 2.0 upgrade aims to solve this problem. First, it will change the power-intensive Proof of Work consensus mechanism to an environmentally friendly Proof of Stake (PoS) architecture. The PoS system chooses validators to verify transactions based on their share of the network, rather than pitting miners against each other based on computing power. This phase should occur in 2022.

Second, the upgrade process will add 64 blockchains to Ethereum. Think of these blockchains as additional blockchains connected to the backbone, which distributes network load more efficiently. And with some additional modification, these cutting chains can raise the throughput to 100,000 TPS, thus solving the scalability problem. It should reach this stage in 2023.

investment thesis

While dApps and DeFi products are more efficient, they are not free. Users pay transaction fees to access the products, and these fees are paid in the original cryptocurrency. In the context of Ethereum, this means Ether tokens. In other words, as dApp and DeFi products on the Ethereum blockchain become more popular — an event that seems likely, given the benefits — demand for Ether should rise, driving its price up.

Additionally, a recent study from Nickel Digital Asset Management indicates that institutional investors are increasingly interested in the crypto space. The study predicts that 82% of institutional investors plan to increase exposure to digital assets by 2023. Given the popularity of Ethereum, I think it’s safe to assume that these big money movers will add to the demand for Ether.

For these reasons, now seems to be the right time to buy this cryptocurrency.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of the Motley Fool Premium Consulting Service. We are diverse! Asking about an investment thesis — even if it’s our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.