Source: PaxForex Premium Analytics Portal, Fundamental Insight
This has been an extremely tough year for investors. Not only has the stock market, as measured by the S&P 500 Index, fallen almost 25 percent in 2022, but the value of cryptocurrencies has also declined. The weakening economy, spurred on by interest rate hikes by central banks around the world, has caused market participants to shy away from risk.
The upside, however, is that in such times, astute investors who take a long-term approach can buy assets at a minimal price. With Ethereum falling 65% in 2022, is it time for investors to buy on the downside?
On September 15, Ethereum completed an update called The Merge, which changed the blockchain's consensus mechanism from a Proof of Work (PoW) system to a Proof of Stake (PoS) system. PoW is known to be very energy intensive and costly, while Ethereum claims that switching to PoS reduces network power consumption by 99.95%. With PoS, new transactions are confirmed by those who own the most tokens.
Why was the successful integration of The Merge so important? It all comes down to scalability. Ethereum can only process 12-15 transactions per second (TPS), which is not enough to reach mass distribution in one day. The Merge paves the way for sharding, which will be introduced around 2023. Sharding will spread the load on the database across the entire network, allowing for more bandwidth and lower fees.
This is very important for the future development of Ethereum. Because the blockchain is equipped with smart contracts, the possibilities for creating real-world use cases are enormous. Ethereum is already a leader in the world of decentralized applications, including decentralized financial protocols and non-fungible tokens (NFT).
Even with innovative capabilities that will potentially allow Ethereum to process many more transactions at a much lower cost, there is stiff competition. For example, Cardano and Solana, the eighth and ninth most expensive cryptocurrencies, respectively, are projects of genuine interest to users and developers alike. Both were launched with PoS protocols from the beginning, avoiding the need to switch to a new protocol like Ethereum. In addition, they can handle a lot more TPS.
Nevertheless, Ethereum is still the leader among cryptocurrencies with smart contracts. At the time of writing, it was valued at $157 billion, and since its launch in July 2015, it has yielded more than 45,000%. If investors believe in the promise of cryptocurrencies and blockchain technology, now might be a good time to seriously consider buying Ethereum.
Cryptocurrencies, including Ethereum, are difficult to value because they do not generate income or profit like regular companies, so determining the best time to buy or sell can be difficult. That means it's probably a good idea to keep a close eye on asset price movements and be prepared to take advantage during periods of market weakness, like now.
Buying Ethereum today, when its price is 74% below its all-time high, could be a winning investment in the long run. But it is wise to invest only the money you are willing to lose since digital assets are still highly speculative financial instruments. In addition, investors will have to deal with a lot of volatility.
If you accept these conditions and have figured out how much risk you can take, it's time to buy Ethereum on the decline. It may be your best investment for the next few years.
As long as the price is above 1250.00, follow the recommendations below:
- Time frame: D1
- Recommendation: long position
- Entry point: 1270.80
- Take Profit 1: 1650.00
- Take Profit 2: 2050.00
Alternative scenario:
If the 1250.00 level is broken-down, follow the recommendations below:
- Time frame: D1
- Recommendation: short position
- Entry point: 1250.00
- Take Profit 1: 1000.00
- Take Profit 2: 860.00
