The cryptocurrency craze continues to rage on. Investors in the world’s top two cryptocurrencies, Bitcoin (CCC:BTC-USD) and Ethereum (CCC:ETH-USD), have done extremely well in recent years.
Indeed, it appears 2021 is shaping up to be no different. Ethereum prices recently hit new all-time highs this year amid burgeoning enthusiasm.
As far as cryptocurrency options go, I can get behind the bull thesis because, relative to other crypto options, I see some real utility with Ethereum.
After all, Ethereum is a leader in decentralized finance (“DeFi”). The company’s decentralized open platform allows developers to build and deploy smart contracts. These contracts are embedded into lines of code, solidifying the terms of the agreement and leaving no doubt as to what was agreed to.
Developers use smart contracts to develop decentralized applications (“dapps“). These dapps are the basis upon which stable coins and DeFi applications are built.
Calculating the true intrinsic value of a cryptocurrency is something I would argue is an impossible task. However, I do view some cryptocurrencies as more “useful” than others. On that basis, Ethereum arises as an intriguing option today.
Here’s more on why investors are bullish on Ethereum right now.
Various Applications Bullish for Ethereum Investors
Unlike other cryptocurrency options like Bitcoin that were developed primarily as a store of value, Ethereum is a protocol designed specifically for real-world use cases.
The cryptocurrency’s aforementioned use of smart contracts allows for a range of real-world applications. I touched on the various DeFi applications (“dapps”) capabilities of Ethereum previously. However, there are certainly additional intriguing use cases for Ethereum worth considering.
Today, one of the hottest topics right now is non-fungible tokens (NFTs). Ethereum happens to provide the protocol upon which NFTs are built. Accordingly, investors bullish on the NFT revolution have a fashionable and trendy reason to look at Ethereum right now.
Additionally, Ethereum is the primary protocol used for stable coins, coin offerings, as well as a range of other financial and insurance products.
Indeed, the financial applications of Ethereum are impressive. Through protocols such as Compound, investors are able to earn interest on their investment or borrow funds. Other exchanges such as Uniswap allow investors to swap fungible tokens using smart contracts made possible via Ethereum’s protocol.
As if that weren’t enough, decentralized file storage is another key avenue investors tend to focus on with Ethereum’s protocol.
The Bottom Line
Cryptocurrencies in general are extremely high-risk assets to hold in an investment portfolio. Indeed, a significant portion of the value of these assets is determined as a result of investor demand.
Much like fine art (or NFTs, for that matter), these digital tokens are only worth what they’re worth because someone else is willing to pay the market price to acquire them.
However, I’m not the only one who thinks this way.
As Dan Waterloo, Adjunct Professor of Industrial Technology and Management, Stuart School of Business at Illinois Tech, said in an email to InvestorPlace.com, it’s important to differentiate between altcoins that are currencies and “blockchain platforms.”
“The best advice is to understand what it is that you are investing in (read the white paper issued for each coin), understand ‘what can go wrong’, have an anticipated gain in mind, commit only the amount of money that you are willing to put at risk and the timeframe that you are able to commit to,” he said.
Ethereum certainly has utility for its community and those using applications based on its protocol. However, investors should always practice proper discipline in portfolio construction. As part of a well-balanced portfolio, putting some “fun money” to work in Ethereum never hurt anybody. Banking one’s entire life savings on ETH is a whole other idea.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.