There are approximately 19.5 million Bitcoins in circulation, resulting in a total market capitalization of roughly $1.2 trillion. Next to Bitcoin is Ethereum (ETH), with approximately 120 million coins in circulation and a market capitalization of about $312 billion. Importantly, and unlike Bitcoins, Ethereum is more than just a cryptocurrency; it's a decentralized platform that supports smart contracts and decentralized applications (dApps). Yes, Ethereum is the foundation for numerous innovations in decentralized finance (DeFi), non-fungible tokens (NFTs), and decentralized autonomous organizations (DAOs).
Investing in Ethereum to hold it for the long term in the hope of making significant profits is a strategy many cryptocurrency gurus advocate. Yes, this strategy comes with opportunities and risks.
What will be the price of Ethereum next year or a year after that? Well, supply and demand are fundamental forces that determine the price of goods and services. When demand increases and supply remains constant, prices tend to rise because more people are competing to buy the same limited quantity. Conversely, if supply increases and demand remains the same, prices typically fall as there is more available than consumers want. When supply and demand are balanced, the price stabilizes at an equilibrium point where the quantity supplied equals the quantity demanded.
Evidence suggests that the use of decentralized applications and DeFi will continue to grow in the coming years. And as this adoption increases, the demand for Ethereum’s blockchain is likely to surge, potentially boosting its value.
Additionally, with Ethereum’s upgrade (EIP-1559), a portion of ETH is ‘burned’ with every transaction, reducing the circulating supply. If demand outpaces supply, the price of Ethereum could rise significantly because of this ‘burning mechanism’.
Over the recent past, Ethereum has seen growing interest from institutional investors as they look for exposure to crypto assets. This could drive up long-term demand. Many enterprises and industries – like real estate, supply chain logistics, and law firms – are developing blockchain solutions on the Ethereum network, which would further jack up demand.
In 2022, Ethereum transitioned to Proof of Stake (PoS) from Proof of Work (PoW) in a process known as ‘The Merge’. This shift reduces energy consumption and increases scalability, efficiency, and security. This PoS mechanism is bound to reduce Ethereum’s supply, creating scarcity and driving prices higher over time.
Yes, cryptocurrencies are known for their extreme price volatility. Yes, Eehereum can experience significant price swings in both directions over short periods, which may be unsettling for some investors. Yes, the regulatory landscape for cryptocurrencies is still evolving and governments could introduce new regulations that may affect Ethereum’s usage and price.
Ethereum is currently the dominant platform for smart contracts but other blockchains like Solana, Cardano, and Binance Smart Chain offer similar or improved functionality. Yes, they could take market share from Ethereum.
Ethereum offers significant potential for long-term growth due to its expanding role in decentralized applications and DeFi. Yes, investors must remain mindful of the inherent risks. The burning mechanism, increasing institutional interest, and the shift to Proof of Stake may all drive up demand and price. However, price volatility and evolving regulations make Ethereum an investment requiring caution – but one with considerable promise for those with a long-term vision.
The writer is a columnist based in Islamabad. He tweets/posts saleemfarrukh and can be reached at: farrukh15hotmail.com