Cryptocurrency is a hot topic everywhere. It elicits passionate discussions from both sides of the aisle. Today we will discuss the opportunity that Ethereum (CCC:ETH-USD) has as a successful cryptocurrency.
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There are extremes lovers of crypto and even more haters.
And then there’s a giant mass of people who don’t want to even try and understand it. The concept is too foreign still. They are be apathetic about it, but therein lies the potential upside in value. They constitute an ocean of new buyers eventually.
Almost everybody on the planet recognizes gold is because it was already there when they were born. For whatever reason, the whole world now accepts that gold is a thing to covet.
I would have loved to see the first gold transaction go down. One person trying to convince another that this yellowish inert rock is valuable. Now, most of us understand that it is rare, therefore it has high value.
Why ETH Has Value
Source: Charts by YahooFinance
When people want something and there’s not enough of it to go around, its value explodes. The Bitcoin (CCC:BTC-USD) and ETH concepts are exactly the same. It doesn’t matter how they work or what they do – if anything. All we need to know is that they exist and millions love them. Therefore, they are expensive, really expensive. ETH is now worth twice as much as gold.
Bitcoin is the best performing asset by far for over a decade. Nothing even comes close, yet some still call it fake. If they don’t believe in Bitcoin, they definitely won’t believe in ETH. Experts argued that Bitcoin needed to catch up to the market cap of gold. That was a big part of the bullish argument. While it is still far, it is closing in fast. I want to apply that logic to ETH catching up to BTC.
I made this argument in early March and that trade served us well. ETH rallied 200% from low to high. But this is not the end of the story because these are volatile assets. The opportunity then was clear as day to me and the logic has staying power. This is not a one-and-done scenario. Many wrote off BTC after its first crash from $19,000. It has since silenced most of the critics. The ones still squawking are being too rigid for their own good.
We Absolutely Need Crypto in Our Future
The 2020 pandemic and ensuing lockdowns were proof that we need crypto. The world has to evolve with how it stores and transacts wealth. In addition, these long-term loose monetary rules from central banks destroyed cash. Diverting some to crypto is a way of seeking shelter from QE infinity. The Fed actions are contributing to the grab for e-coins.
This fact could be the cause for the next crash in ETH. Yes, there will be many of them and they will be buying opportunities. Investing in crypto is an ongoing process. This is not the case of waiting for a perfect opportunity because it might never come.
This week we finally saw some inflation in the CPI reports. This may force the Fed to reconsider its QE levels sooner than 2023. If so, it may relieve some buying pressure off crypto.
An Investment Vehicle
In conclusion, I don’t really care what ETH does, or how I can use it as a coin. I want it as an investment vehicle, and I only need to know that it is riding the Bitcoin coattails. Just like it’s big brother, I expect extreme volatility along the way. Therefore, I should invest in small tranches and over time.
Trying to time it is difficult even for people like me who can read charts. Most retail investors lack the skills necessary to play that game.
Recently, prices soared to $4,400 then quickly faded in just a few hours. A 20% drop sounds like a major crash but this only took it back to levels of three days ago. ETH could fall to $2,800, which is an additional 25% drop and not change anything. Just last month it was under $2,000, so clearly this one moves fast and either direction.
The bulls are in charge and the critics are on the defense.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.