Ethereum: Can It Be a Long-Term Winner?

Key Points

• Ethereum is the most widely used blockchain for stablecoins and DeFi protocols.

• Institutional investments into Ethereum ramped up during the past two months.

• It could be one of the most successful cryptocurrencies during the next decade.

• 10 stocks we like better than Ethereum ›

Ethereum (CRYPTO: ETH) has had its best stretch in years recently, posting double-digit percentage returns in July and August. It also reached a new all-time high of nearly $5,000 on Aug. 24, although the price has pulled back since then.

Of course, plenty of cryptocurrencies have been successful for short periods of time. The long-term winners are much fewer and further between. You could already consider Ethereum part of that group during its first 10 years. Since its launch in 2015, it's up more than 140,000% (as of Sept. 2).

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The question for crypto investors is whether Ethereum is still a good long-term investment. Although cryptocurrencies are always a risky proposition, I think Ethereum is one of the stronger investment options. Here's why.

Image source: Getty Images.

The leading blockchain for stablecoins and DeFi

The biggest point of contention between crypto believers and skeptics is the real-world utility of cryptocurrencies and blockchain technology. There have been quite a few supposed use cases over the years, and the jury's still out on some of them, like non-fungible tokens (NFTs).

But there are a few use cases gaining traction right now that should have staying power. The first is stablecoins, which are cryptocurrencies designed to follow the value of another asset. The largest stablecoins are pegged 1-to-1 to the U.S. dollar, and the stablecoin market as a whole is worth more than $280 billion, with projections that it could be worth as much as $2 trillion by 2028.

Decentralized finance (DeFi), referring to financial systems built on a blockchain, is another way people are using cryptocurrencies. There are crypto savings protocols, loans, and crypto tokens that represent real-world assets (RWAs), such as stocks.

Here's why this is good for Ethereum: It's the top blockchain for stablecoins and DeFi services. There's $150 billion worth of stablecoins on Ethereum, meaning it accounts for more than half the entire market. It also has $90 billion of total value locked (TVL) into its DeFi protocols, nearly 60% of the TVL across all blockchains combined.

The reason Ethereum is so far ahead is because it was the first blockchain capable of running smart contracts, which are essential for issuing crypto tokens and developing protocols on a blockchain. That allowed it to build up a large user and developer base years before most of its competitors emerged.

Growing institutional adoption

One of the biggest reasons Ethereum has been soaring this summer is institutional adoption. Corporations had already been buying market leader Bitcoin, but at the end of June, renowned investment strategist Tom Lee became the chairman of Bitmine and announced plans to add Ethereum to its corporate treasury. He eventually wants Bitmine to hold 5% of the entire Ethereum supply.

The move kicked off a rise in companies buying Ethereum for crypto treasuries. CoinGecko currently lists 11 public companies, led by Bitmine, with about $14 billion in Ethereum holdings. They own under 3% of the Ethereum supply so far. A little more than 7% of the Bitcoin supply is in corporate treasuries, so Ethereum could see continued corporate investments.

In addition, the increased interest in Ethereum attracted more exchange-traded fund (ETF) investments. The Securities and Exchange Commission (SEC) approved the first spot Ethereum ETFs in July 2024, but early inflows were modest. That changed during the past two months, with inflows of $5.4 billion in July and $3.9 billion in August. Those two months account for most of the cumulative ETF inflows of $13.5 billion (as of Aug. 29).

The long-term outlook for Ethereum

There's a lot to like about Ethereum, but it also has risks. Although it's the dominant blockchain right now, it faces stiff competition. Solana is faster and has much lower transaction fees, which has helped it cut into Ethereum's market share. Tron is a major player in the stablecoin niche. It has $81 billion in stablecoins, 29% of the total market, and it's the most popular blockchain for stablecoin payments in some regions of the world.

Ethereum is also highly volatile and has gone through extended downturns. If you had bought Ethereum during its last peak in November 2021, you wouldn't have been up on your investment until the end of last month (and you'd already be down again at today's prices).

Risk is part of investing in cryptocurrency, though -- and a reason to keep your positions small. Ethereum's success as a platform for stablecoins and DeFi protocols, along with its increasing popularity among institutional investors, make it a compelling investment. If you're looking for cryptocurrencies to buy and hold during the next 10 years, I think Ethereum and Bitcoin are the two safest options.

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Lyle Daly has positions in Bitcoin, Ethereum, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, and Solana. The Motley Fool has a disclosure policy.