Ethereum has had a rough start to the year, but it’s still way above what it was a year ago.
This kind of volatility is just part of the deal when it comes to investing in Ethereum, or any other cryptocurrency. Ethereum is the second-largest cryptocurrency after Bitcoin, making up roughly one quarter of the entire 16,000-plus cryptocurrencies in existence. But its susceptibility to big price swings is why experts say investors should proceed cautiously.
Invented by then-21-year-old computer programmer Vitalik Buterin in 2015, Ethereum isn’t just a digital currency like many other cryptos. While Bitcoin is known as “digital gold,” Ethereum also works as a software platform that runs on blockchain. When people refer to “Ethereum,” they are often talking about the blockchain itself, whereas the native currency used to transact on Ethereum is Ether, and typically shortened to “eth” or its ticker symbol, ETH.
Before you buy Ethereum or any other cryptocurrency, make sure you are prepared for the extra risks it can pose to your portfolio. Experts say it’s smart to keep crypto investments to under 5% of your total portfolio, and not to let it hold you back from maintaining a healthy emergency fund and paying down high-interest debt.
Here’s a look at Ethereum’s price over the years, and how today’s slumping price compares.
Ethereum’s developers, led by Buterin, launched the blockchain in 2015, two years after the open-source Ethereum whitepaper outlined the protocol. For all of 2015, Etherum was valued under $1 — but more important than its price was the potential crypto investors saw in it.
The intent of Ethereum has always been to create a blockchain that not only makes cryptocurrency, but also allows people to build decentralized applications, or DApps. These DApps are sort of like the apps on your phone, except they are built on top of a blockchain and accessed through a crypto wallet.
Enter Ethereum. The platform made possible what are now known as smart contracts, or programmable contracts that carry out transactions on the DApp. We most commonly see smart contracts used when people buy or sell non-fungible tokens (NFTs) on blockchain. For instance, smart contracts can help ensure that every time an NFT is bought and sold again, the artist continues to receive a portion of sales because the royalty instructions are coded within the token itself.
However, smart contracts have potential beyond NFTs and some experts think they could bring new efficiency and innovation to things like voting records, and even supply chain management. Thus, Ethereum sparked the imagination of crypto enthusiasts and survived its first year.
Ethereum’s steady stride took on more volatility in 2017, and we started to see jumps on the chart where the price surpassed — then dipped back below — all-time highs. The first rapid climb happened between April and June, when ETH went from the mid $40s to a price of roughly $362. It achieved a few more peaks and valleys, until its next all-time high came in December — this time $826. ETH closed the year 2017 around $772.
In January 2018. ETH kicked off with a price 600 times higher than it was just two years prior in January 2016. The euphoria, however, would peak and fizzle just after ETH reached a new all-time high of about $1,396 on Jan. 12. Things quickly turned after that. Except for one brief spike back up to $816, ETH’s price declined all throughout 2018. It closed the year around $141.
Prices calmed for about two years, and ETH fluctuated between $150 and $730. While this range still demonstrates the dramatically volatile nature of crypto, these rolling peaks and valleys stayed within about a $600 margin and were comparatively mild when we look at what came next in 2021.
Because of its smart contract capabilities, Ethereum was (and arguably still is) the most popular blockchain protocol for minting, buying, and trading NFTs — though competitors are moving in now that Ethereum’s service fees are high and traffic is crowding up the website.
The demand for NFTs sent the number of people buying ETH skyrocketing. To purchase an NFT, consumers need a crypto wallet funded with ETH, which they then use to purchase the digital tokens they want. It’s no surprise, then, that the price of ETH shot up from around $730 in late 2020 to $4,000 by May of 2021, followed by another all-time high around $4,800 in November.
But since the dawn of 2022, Ethereum’s price dropped back below $3,000. Bearish sentiments of the crypto market have begun to circulate, and some speculate they could take hold of the narrative at least momentarily.
As with any volatile investment, financial planners say you should ignore the ups and downs and focus on your bigger-picture strategy — whether that includes crypto or not.
While the demand for crypto is rising — the number of new wallets worldwide increased by 45% last year, according to a recent CoinDesk report — a comparatively small percentage of the larger population engages with Bitcoin, Ethereum, and other altcoins. The popular crypto exchange Coinbase now has over 73 million worldwide users, and Gemini found 21.2 million Americans now own cryptocurrency of some kind.
A good rule of thumb, according to most financial planners, is to invest a small percentage of your portfolio in crypto, the same way you would another alternative investment that exists outside the traditional stock market. Generally, this means between 1% and 5% of your total portfolio should be in crypto at maximum. Any more opens you up to greater risk — and you’d have to weather some serious swings.
When staying within the 1% to 5% window, “the gains exponentially outweigh the risks,” says Alicia R. Hudnett Reiss, certified financial planner and founder of Business of Your Life, a Washington, D.C-based financial planning service.
If the price of ETH drops 10% overnight, for example, a 1% allocation of your portfolio won’t deplete your overall savings and investments, at least not beyond repair. You might not even notice much of a dent, argues Hudnett Reiss.
“But on the other side, you could have such a high return,” says Hudnett Reiss. When the price of ETH swings back toward the positive and/or increases exponentially as it has done in the past, you’ll notice a favorable return that will pad your portfolio nicely.
If you decide to invest in crypto, Bitcoin and Ethereum are common places for beginners to start: “Those are the two most widely adopted,” says Mint certified financial planner, Brittney Castro. “They are kind of like the Apple and Google of cryptocurrency,” she says, meaning they were the first to hit the market and capture the imagination of investors.
However, Castro adds a note of caution: “We still have no idea what the future holds and what that means for the value of these specific cryptocurrencies.”
While the future is uncertain with Etherum and any type of crypto, you can start to prepare your finances today so that you’re ready to invest at your desired risk level. Prioritize your retirement fund, savings accounts, and high-interest debt payoff first — knowing that even industry insiders view crypto investing with a long-term perspective in mind.
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