2 reasons to invest in Ethereum – and 1 reason not to

ether (CRYPTO: ETH) has made waves and rivaled in the crypto world Bitcoin (CRYPTO: BTC) as one of the most popular cryptocurrencies. It has also seen explosive growth, with the price increasing more than 1,000% in the past 12 months.

While crypto prices have plummeted in the past few weeks, that doesn’t necessarily mean it’s a bad time to buy. In fact, downturns can be a great investment opportunity when prices are lower. Considering that Ethereum is one of the higher priced cryptocurrencies, now could be a good time to buy when it’s “on sale”.

Just because the cryptocurrency is cheaper doesn’t necessarily mean it’s a good investment. Ethereum is still a high risk cryptocurrency and not the right choice for everyone. If you are unsure about investing, there are two reasons to buy now – and one reason to avoid it.

Image source: Getty Images.

Why should you consider buying?

1. Ethereum 2.0 could give it a competitive advantage

One of the criticisms of cryptocurrency in general is that it is incredibly energy intensive. Crypto tokens are “broken down” through a series of complicated computer processes. This mining process requires a significant amount of energy, and cryptocrites have raised concerns about its impact on the environment.

Actually, Tesla CEO Elon Musk recently announced that the company will no longer accept Bitcoin as a means of payment because of its environmental impact. That announcement was one of the reasons behind the recent crypto crash, as investors wondered if the cryptocurrency could really thrive over the long term.

However, Ethereum is taking steps to make the technology more energy efficient. Technically, Ethereum is the name of the blockchain technology, while Ether is the token hosted on this blockchain. Ethereum 2.0 is an updated version of the blockchain slated to roll out later this year or early next year and claims to use 99.95% less energy than current technology.

If Ethereum becomes more energy efficient, it could gain a competitive advantage in the crypto industry and an edge over Bitcoin.

2. The Ethereum blockchain has more uses

For any cryptocurrency to survive, it must have a real use. At the moment, Bitcoin is the most popular and widely used cryptocurrency. However, the Ethereum blockchain is used for a variety of purposes, which gives it an edge.

Ethereum not only houses the Ether token, but is also the basis for other applications such as non-fungible tokens (NFTs) and decentralized finance. NFTs could change the way digital items are bought and sold, and the decentralized financial movement is aiming to revolutionize the banking industry.

In addition, Ethereum 2.0 plans to make the blockchain faster and more scalable so that it can be used for even more applications. That could give Ethereum an even greater benefit and advantage.

The widespread use of Ethereum could also benefit Ether. If Ether is needed for applications on the Ethereum blockchain, the success of Ethereum could give Ether a competitive advantage over Bitcoin and other cryptocurrencies.

Why Avoid Ethereum Now?

1. It is extremely volatile

As the last few weeks have proven, cryptocurrency is still an extremely volatile investment. Between May 12 and May 24, Ethereum lost almost 50% of its value. Although it has recovered somewhat since then, such downturns can be difficult to endure.

This particular crypto crash isn’t the first time Ethereum has suffered dramatic losses either. In fact, the price of Ethereum plunged nearly 94% over the course of 2018.

Ethereum price chart

Ethereum price data from YCharts.

Cryptocurrency is still a highly speculative investment, and there are no guarantees that Ethereum will be successful in the long run. We’re breaking new ground with crypto, and it’s unclear whether it will change the world or crash and burn.

If you do decide to invest in Ethereum, make sure you have a high level of risk tolerance and only invest money that you can afford to lose. The last thing you want to do is put your savings in such a high risk investment as cryptocurrency.

Ethereum has the potential for extraordinary profits, but it is also an incredibly risky investment. Before investing in this cryptocurrency, make sure that you have done your research and know what you are getting yourself into. Crypto could be a life changing investment, but it isn’t for everyone.

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Katie Brockman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Bitcoin and Tesla. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.

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