Down 62% From Its High, Is Ethereum a Value Play or a Classic Value Trap?
Key Points
Ethereum has released a new strategic road map that promises a series of important upgrades and advances.
Behind the scenes, Ethereum is making new efforts to boost institutional adoption of its blockchain.
Despite these efforts, value continues to flow to other parts of the Ethereum blockchain ecosystem, and not to Ethereum itself.
- 10 stocks we like better than Ethereum ›
It's not an understatement to say that the past 11 months have been rough for Ethereum (CRYPTO: ETH). After hitting a new all-time high of $4,954 last August, Ethereum has been in free fall. It's now down a whopping 62% from those highs.
As a result, Ethereum has become a very polarizing investment. It has been so good, for so long, that it seems remarkably undervalued at just $1,800. Over the past decade, crypto investors have reliably been able to "buy the dip" on Ethereum.
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That might have been the case in the past, but is it still true today?
The bull case for Ethereum
The good news is that Ethereum seems to recognize that it needs to do something to turn things around. For example, co-founder Vitalik Buterin recently released a new "Lean Ethereum" road map that outlines a series of changes, advances, and upgrades that will help the embattled blockchain reignite growth over the next few years.
This new road map specifically targets areas such as quantum cryptography, promising full quantum resistance by 2029. In addition, it promises major upgrades to transaction processing speeds, a reduction in overall complexity, and a newfound focus on user privacy. According to a growing number of analysts, this could be the biggest upgrade to the Ethereum blockchain since the much-ballyhooed Merge in 2022.
Image source: Getty Images.
At the same time, there have been shakeups at the Ethereum Foundation, the nonprofit organization that helps to support the highly decentralized blockchain. Moreover, a new nonprofit called Ethereum Institutional recently launched, with the goal of making the Ethereum blockchain much more accessible to big institutions and corporations.
The bear case for Ethereum
The problem, quite simply, is that this might be a case of too little, too late. A common complaint about Ethereum is that its overall blockchain architecture has become too complex. All the value is now flowing to Layer-2 blockchains that sit atop the core Ethereum blockchain, rather than to Ethereum itself.
Case in point: Robinhood Markets recently launched Robinhood Chain, a Layer-2 blockchain on top of the core Ethereum blockchain. By doing so, Robinhood doesn't have to reinvent the wheel. Robinhood can leverage the core features of the Ethereum blockchain (such as security and scalability) and now offer advanced trading functionality to its customers. That's bullish for Robinhood, but is it really bullish for Ethereum?
At the same time, competitors are starting to run laps around Ethereum. Solana is the standout here, given its super-fast transaction processing speeds. Ethereum hopes to reach 10,000 transactions per second by 2029, yet Solana claims to have already delivered speeds as fast as 65,000 transactions per second.
Be careful about ultra-bullish price predictions for Ethereum
As a result, investors should be wary of ultra-bullish price predictions for Ethereum. It may be some time before Ethereum regains its all-time high from last summer. For now, I'm bearish on Ethereum. Instead of being a value play, it increasingly looks like a classic value trap.
Should you buy stock in Ethereum right now?
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Dominic Basulto has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Ethereum and Solana. The Motley Fool has a disclosure policy.
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