Digital currencies like Bitcoin and Ethereum have been gaining popularity over the last couple of months, and more and more investors are wondering how they can take advantage of the trend. While Bitcoin remains the largest cryptocurrency by market capitalization, Ethereum has increased in prominence in the market due to the numerous features it offers.
Suppose you’re a newbie and just discovered the crypto world; you might have no idea what Ethereum is and how you can invest in it. Hence, you don’t know if it’s a good investment choice to build a diversified portfolio and increase your profit.
Let’s figure it out!
What is Ethereum?
Ethereum is defined as an open-source blockchain that functions differently than Bitcoin, especially after it switched to the proof-of-stake protocol. Vitalik Buterin developed Ethereum and continues to upgrade it to ensure it meets the actual market’s requirements.
Ethereum was created aiming to provide developers with a platform that facilitates the creation of decentralized applications, also known as dApps. Decentralized applications have different functions, and each developer can create an app to solve an issue they identified in the financial, gaming, or entertainment sectors. They can also issue tokens to be used with the apps.
Ethereum has also gained investors’ attention because it hosts the most popular NFT projects. For example, CryptoKitties, one of the highest-selling non-fungible tokens projects, was developed on Ethereum in 2017. The blockchain allows developers to create worlds, build games, employ apps, manage supply chains, and issue smart contracts.
Ether is the cryptocurrency associated with the blockchain and has different characteristics than traditional currencies backed by central banks and issued by governments.
Should you invest in Ethereum?
We mentioned earlier that Ethereum differs from Bitcoin in several ways, and if you’re interested in adding it to your investment portfolio, you should try to understand the distinctions between different assets so you can decide which one is the ideal solution for you. All crypto coins, besides Bitcoin, are called altcoins, and Ethereum is the most popular of them all. The biggest difference between Ethereum and Bitcoin is that Ethereum functions as a complex platform that enables the creation of decentralized apps, while Bitcoin is mostly used as a digital payment method.
Bitcoin might be more well-known to the public, but Ethereum has more vast functions, and the companies and investors looking to make a profit from cryptocurrencies would get greater benefits from investing in Ethereum.
Whether Ethereum is the right asset to add to your portfolio or not depends on your personal goals. Decide what strategy works best for your portfolio, analyze if Ethereum fits it, and use your finances wisely.
If you want to invest in the ideal cryptocurrency, your strategy is to invest in the underlying blockchain technology. However, if you solely want to purchase a digital currency to add to your investment portfolio, there are better alternatives than Ethereum. Suppose you’re one of the investors who believe that Ethereum’s multiple functions will transform it into the dominating asset in the crypto world; then you should direct your finances towards it.
It’s essential to bear in mind that you could lose money when you invest in any cryptocurrency, Ethereum included. It’s recommended to limit your exposure to volatile assets like digital currencies and diversify it with numerous types of commodities.
Pros to invest in Ethereum:
– Ethereum is more than a digital currency; it comes with blockchain technology that enables the development of decentralized applications and has several other uses
– An increasing number of organizational investors are using Ethereum
– It’s an eco-friendly blockchain
Cons to invest in Ethereum:
– Ethereum experiences scaling issues
– Ethereum has several fees associated with executing transactions and using smart contracts
– Ethereum isn’t as famous as Bitcoin
Investment tips for newbies
Learn more about Ethereum
If you’re clueless about cryptocurrencies, it’s crucial to research to find as much as possible about the ones you want to add to your portfolio. Regardless of the sum you want to invest, you don’t want to lose money because you skipped this step.
Ethereum is one of the digital assets with a great potential to bring you a high return on investment. History shows that its price increased steadily over the years, and depending on market trends, it could register a spike in price of over 10% in the following period.
Its decentralization makes it a profitable investment because it provides it with a level of security not many commodities have. Additionally, Ethereum also provides you with the opportunity to play an active part in the network’s development.
Establish your risk tolerance
Before investing in crypto, remember that the activity comes with several associated risks because assets like Ethereum have high volatility. Factors like regulatory uncertainties, abrupt price fluctuations, and cybersecurity impact your investment’s success, and it’s paramount to decide how risk tolerant is in case of unexpected issues.
Your financial situation and emotional state influence your risk appetite, so establish some rules to follow when trading Ethereum. It could also help to devote yourself to learning about the ever-changing market conditions. This could help you identify the events and factors that impact Ethereum’s evolution so you can adjust your strategy.
Invest only the money you afford to lose
Investing in Ethereum and other blockchain-based currencies is risky. This is why it’s ideal never to spend more than you can afford to lose. So before heading to an exchange platform to purchase Ether, decide how much you can lose without impacting your lifestyle and wellbeing in any way.
Identify the right moment to sell
Each investor establishes their own rules and strategies when trading Ethereum so they can manage the risk. However, it’s important not to let your emotions dictate your decisions. Don’t panic and sell your assets because the price dropped, the chances are for Ethereum’s value to bounce back in the following period.
The crypto market is currently recovering from a bear stage, and it provides the ideal opportunity to purchase Ethereum, as it’s still sold at an affordable rate. Even if the price might drop in the next period, it’ll definitely bounce back when the crypto market enters a bull stage.