Is Ethereum a No-Brainer Buy After the Bitcoin Halving?

Many cryptocurrencies retreated from all-time highs a few years ago as rising interest rates prompted investors to invest more conservatively. But three positive developments have lifted the broader market this year: expectations for lower rates, the approval of the first Bitcoin (CRYPTO:BTC) spot exchange-traded funds (ETFs) in January, and Bitcoin’s halving in April.

But now that Bitcoin has completed its long-awaited halving, which reduces the rewards of mining Bitcoin every four years, there are likely to be fewer near-term catalysts for the world’s largest cryptocurrency. So is it time to turn our attention to Ethereum (CRYPTO:ETH), the world’s second-largest cryptocurrency, for even bigger gains this year?

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Differences between Ethereum and Bitcoin

Ether is the native token of the Ethereum blockchain, which was launched in 2015. Ethereum initially used the same energy-intensive proof-of-work (PoW) mining method as Bitcoin, but switched to the more energy-efficient proof-of-stake (PoS) method in 2022 in a process called The Merge. This switch reduced Ethereum’s mining energy consumption by 99.95% and made it deflationary — meaning more coins are burned or permanently removed from circulation than created. PoS blockchains also allow investors to stake or lock their tokens for fixed periods of time to earn interest-like rewards.

The Ethereum blockchain was also developed to support smart contracts, which can be used to create decentralized applications (dApps), smaller tokens, and other crypto assets. Bitcoin’s blockchain can only be used to mine more coins. This is why Ethereum is often valued by the expansion of its developer ecosystem, while Bitcoin is often compared to gold or silver.

This fundamental difference led the U.S. Securities and Exchange Commission (SEC) to say that Bitcoin is the only cryptocurrency that can be classified as a commodity. This classification supported their approval of the first spot Bitcoin ETFs.

But the SEC has been reluctant to call Ethereum and other PoS coins commodities, saying the staking process makes them akin to securities. Still, the SEC cleared the way for Ethereum’s first spot-priced ETF applications earlier this year.

Positive and negative developments for Ethereum

Ethereum’s biggest near-term catalyst will likely be the potential approvals of its first spot ETFs. The SEC has reportedly given preliminary approval to at least three of eight planned spot price ETFs, according to Reuters, and recent speculation suggests many of these funds could begin trading as early as July 23.

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Ethereum’s price has risen nearly 50% this year, but the first spot ETFs could push its price even higher. For reference, Bitcoin’s price has risen more than 40% since the first 11 ETFs were approved on Jan. 10.

Another major catalyst is Ethereum’s recent Dencun upgrade, which increases the speed of the upgrade and reduces gas fees (mainly network user fees) for the Layer-2 blockchain. The stabilization and decline of interest rates could also bring investors back to Ethereum and other cryptocurrencies.

But Ethereum still faces unforeseen headwinds. The Dencun upgrade has made Ethereum inflationary again, and its supply will continue to grow unless more tokens are burned. It also processes transactions at a slower rate than newer PoS blockchains like Solana (CRYPTO:SOL) and Cardano (CRYPTO:ADA), and these limitations could limit the expansion of its ecosystem.

Ethereum’s planned spot ETFs will not feature any staking mechanisms like its underlying tokens, so they may not be a compelling alternative to owning the cryptocurrency directly. Finally, market expectations of lower rates and ETF approvals may already be factored into its current price.

So is Ethereum a wise investment to buy right now?

As of this writing, Ethereum is trading at around $3,400, but some optimistic investors are expecting it to make big gains in the next few years. Matthew Sigel and Patrick Bush of VanEck expect the price to more than triple to $11,800 by 2030, while Cathie Wood of Ark Invest says it could be worth $166,000 by 2032.

We should take these rosy predictions with a pinch of salt, but I believe Ethereum’s spot-priced ETF approvals and lower interest rates will limit its downside potential this year. The next planned upgrade to the Ethereum network, Pectra, should further increase its speed and lower gas fees to keep pace with Solana and Cardano. For this reason, I still believe Ethereum is a good cryptocurrency to accumulate right now — but investors shouldn’t expect it to explode in the next few months.

Should you invest $1,000 in Ethereum right now?

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.

The article Is Ethereum an Easy Buy After Bitcoin Halving? was originally published by The Motley Fool