Next year brings with it a mix of opportunities and threats for Ethereum (CCC:ETH-USD).
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On one hand, the wider adoption of crypto will carry on in the coming year. That’s good news for its network, which is still the dominant ecosystem in the world of decentralized finance (DeFi). This, combined with the implementation of upgrades, could lead to higher prices ahead for the Ether token.
On the other hand, all of this may not necessarily translate into higher prices for its token. As several of my InvestorPlace colleagues have argued recently (Chris Markoch, David Moadel), further hawkish moves by the Federal Reserve could put more downward pressure on ETH, and cryptocurrencies at large.
So, with these pros and cons in mind, what’s the best move, as Ethereum trades at $4,000 per token? Success trading it next year could prove more difficult than it was in 2021. In other words, there may be fewer opportunities to trade around it, or to simply hold it and make outsized gains.
That said, if your objective is to have upside exposure in the event what’s now being called Web 3.0 lives up to the hype, and isn’t a fad? It may be worth it to buy and hold this crypto.
Ethereum and its Key 2022 Catalyst
Before diving into the risks at hand due to changes in the market environment, let’s first dive into this token and its blockchain, and why its main catalyst could help it make a move to higher prices in 2022.
The main catalyst for Ethereum, of course, is the much-discussed 2.0 upgrades. These enhancements, primarily the switch from proof of work (PoW) to proof of stake (PoS) will further strengthen it. 2.0 will make it more secure and more sustainable.
Most importantly, it will make its network more scalability, enabling it to process more transactions per second and alleviate the pain points (namely, high transaction fees) that have compelled developers to move their projects over to competing platforms like Cardano (CCC:ADA-USD) and Solana (CCC:SOL-USD). This could enable ETH to not only re-hit its all-time high ($4,891.70), but rally to $5,000 per token and beyond.
It may also be the event that enables the so-called “flippening,” or when Ethereum becomes more valuable than Bitcoin (CCC:BTC-USD) in terms of market capitalization. Upgrades could help this crypto have another banner year. However, it’s far from a lock that’s how it will play out.
Next Year Could Bring Wild Swings, Middling Returns, or Worse
For all the talk about 2022 being the year of Ethereum 2.0, keep in mind that the upgrades have already experienced delays. For instance, The Merge phase was scheduled to happen at year’s end. Yet it’s still pending, although the recent release of the Kintsugi Testnet helps bolster the chances it happens in the coming year.
Again, this isn’t the largest risk to ETH-USD prices over the next 12 months. Like I hinted before, the largest risk has to do with the Federal Reserve. Upcoming Fed actions, like tapering and interest rate increases, may further dampen the appeal of risky assets like crypto.
It’s too early to tell what a continued pivot to risk off will do to the price of Ethereum and other major cryptos. It could just cause more wild swings, and middling returns for buy-and-hold investors. Short-term speculators though may find plenty of opportune trades if this happens.
Worse yet, instead of staying range bound, a more risk-off market may mean a continued slide in crypto prices. Long-term investors could see negative returns. Short-term speculators may end up seeing more trading losses than trading gains. Taking all of this into account, it’s best not to bet the ranch on any crypto, including seemingly established ones like ETH-USD.
Despite The Risks Ether is Still A Solid Crypto Play
Given the changes in the market environment playing out today, I wouldn’t buy cryptos thinking that 2022 will bring with it another year of triple-digit percentage returns. Even so, as crypto continues going from niche to mainstream, you may want to have some exposure to the Web 3.0 trend.
Rising altcoins like Cardano and Solana offer more upside potential, countered by higher amounts of risk and uncertainty. Bitcoin is more established, while at the same time likely has less room to run.
Ether offers more stability than its so-called “killers,” plus with its pending upgrades has a strong catalyst that could send it bolting higher. Assuming of course that current worries about further crypto prove to be overblown.
If you’re confident crypto’s future is still bright, consider buying and holding Ethereum.
On the date of publication, Thomas Niel held LONG positions in Bitcoin and Ethereum. He did not hold any of the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.