Is Ethereum a Dirt Cheap Bear Market Buy?

With financial markets wobbling amid the economic disruptions that are anticipated due to new tariffs, the possibility of a bear market in crypto is decisively on the table. If a bear market does happen, it could be a great opportunity to load up on quality crypto assets for pennies on the dollar.

On that note, Ethereum (CRYPTO: ETH) is currently priced around $1,574, which is more than 50% lower than its price 12 months ago. A bear market would doubtlessly drive its price even lower. But with such weakness heading into hard times, would the coin be worth buying, or is it a value trap?

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It's very cheap right now for a reason

It's key to understand why Ethereum is not performing well right now, nor has it performed well in the recent past, when conditions were more favorable than they may be ahead.

In a nutshell, Ethereum has one big problem that never seems to get fully solved: scaling. While it's true that compared to yesteryear its transactions execute faster and that its gas (user) fees are much lower than they used to be, transactions are still not fast, and gas fees are still not cheap. One simple swap transaction costs about $0.79 as of April 8, and takes around 1.5 minutes to close. Compared to the tens of dollars in fees that it was charging during prior bull markets, that's a tremendous improvement.

But Ethereum still is more expensive than competitors like Cardano and especially Solana. It's also still much slower, even with some dramatic improvements.

Nonetheless, hope springs eternal that the next big update to Ethereum's blockchain tech, called Pectra, will be the one that finally solves scaling. Pectra is slated to launch on May 7, so it could be a support for the coin's price if the market is declining at that point. It's hard to envision how Pectra could completely reverse investor sentiment, though it's possible that a few more upgrades could do the trick down the line.

Upgrades aside, there's no arguing with the fact that it's still the second-largest blockchain, with a market cap of about $195 billion, despite its issues. The faster and cheaper competitors aren't even close to being the same size, which means that their ecosystems have inherently less access to on-chain capital to fund development projects. During a bear market, that difference could be decisive in keeping Ethereum's ecosystem alive when others wilt from investors taking a risk-off attitude to speculative assets.

Things could get a lot worse before they get better

So, Ethereum will be entering any potential bear market in a battered condition, just in time for sentiment to tank. It does not seem likely that it would be able to maintain its value better than its chief competitors.

Still, its price could get so low that investors who buy it when things look especially hopeless could get an astronomical return when conditions inevitably improve. It's difficult to say precisely at what price level that would be. But as long as the Ethereum crypto ecosystem remains the largest, and as long as there are still developers working on its chain to produce new and interesting projects in decentralized finance and other key segments, it won't die. That means there is probably a juicy yet risky and far from guaranteed opportunity to scoop up large quantities of the coin for very little money during the depths of a bear market.

Such a move is not the right one for most investors. Only those who are willing to lose their entire investment should be even considering it. Furthermore, those who buy Ethereum during a bear market would need to be aware that a recovery could take years -- probably much longer than the duration of the bear market alone, considering how the chain is positioned today.

Whatever you do, don't let the recent price decline of this coin determine whether you buy it during a bear market; look at whether the investment thesis for it gaining value is getting stronger, or whether it has been invalidated somehow. If a lot of capital is flowing out of the chain to its competitors in a down market, it's not a good sign.

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Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.