Why You Should Add Ethereum To Your 2021 Portfolio
Seeking Alpha Analyst Since 2020
Writing about Crypto since 2016 at AverageJoeCrypto.com. I post about digital tokens and crypto related stocks. An average guy with a good amount of crypto experience. I write for everyone, especially new people who crave simple explanations and analysis.
I am not an expert and this is not advice.
Summary
- Ethereum is deflationary. The transition to Ethereum 2.0 is set to reduce the inflation rate of ETH to 0.5% to 2.0%, similar to BTC and gold in terms of supply.
- The Ethereum 2.0 model suggests those staking Ether (like locking your dollars in a CD) can expect to earn 4.6% to 10.3% in annualized rewards.
- Stablecoins and DeFi are both growing and heavily use the Ethereum network.
- 2021 could finally bring an Ethereum ETF.
Ethereum Making Moves
What a wild year 2020 has been. As the bulls charge into 2021, what price predictions do we have for Ethereum and what is the outlook for Ether?
You probably have some idea what Ethereum is, and what it is used for. Before I get into any price targets though, here is a recap of Ethereum, and what 2021 and the future hold.
Ethereum is the second most valuable crypto network, and has been for years. Ethereum aims to be a globally distributed computer for Dapps (decentralized applications) and executing peer-to-peer contracts. It runs all over the world on participating computers, and theoritcally can't be shut down. Ethereum has become the most utilized blockchain in the world. It powers much of the De-Fi, or decentralized finance, economy.
The next generation of this blockchain network is Eth2.0, which is just starting its first phase. The goal of this massive upgrade is to make a more secure, reliable, and quicker network. Ethereum is moving from a proof of work system, like Bitcoin, to a proof of stake protocol. If you want to understand what that means, I suggest this article.
I have always been a believer in Ethereum and its potential. I am not one to argue about Bitcoin vs Ethereum. I think that they are different and both have their place in the market. Ethereum has the potential to power much of our future technology and transactions. I really suggest you go read and understand more about where it is headed and what it will do.
Price Outlook
So now let me get into what I think about Ethereum's current price and some Ethereum price predictions for 2021.
As I write this, Ethereum is priced at $691 and Bitcoin is at $26,913. This is much different than the 2017 rally, where Bitcoin was at $20k and Ethereum was at $1,400. What a change! While Bitcoin is $7k higher than before, the Ethereum price is half of what it was! Which just goes to show that the market is quite different now with how it is pricing crypto tokens and assets. I do believe that Ethereum is undervalued at this current price.
Here are a few reasons to consider Ethereum as an investment, and why the price of ETH should be higher:
- Ethereum is deflationary. The transition to Ethereum 2.0 is set to reduce the inflation rate of ETH to 0.5% to 2.0%, similar to BTC and gold in terms of supply inflation.
- The economic model behind Ethereum 2.0 suggests those staking Ether (like locking your dollars in a CD) can expect to earn 4.6% to 10.3% in annualized rewards. That is much higher than the interest you get buying a CD or Bond.
- Stablecoins and DeFi are both growing and heavily use the Ethereum network.
- The supply will tighten as more people come into the space, stake their supply, and deflation accelerates.
Now that you have a few reasons the price could go higher, let me throw out some Ethereum price predictions. This is just my own crazy formula on where the price of Ethereum should be, feel free to accept or ignore my thesis.
If Bitcoin goes to $30k, I think Ethereum should be $1500. I loosely think that for every $10k that BTC goes up, ETH should go up by $500. So if BTC reaches $50k in 2021, ETH should be at $2500. I am basing this price estimate on a few thoughts.
- If Bitcoin keeps rising, many will FOMO and look for a cheaper alternative to invest in, and they will snap up Ethereum.
- 2017 price highs.
- Ethereum will see more adoption from institutions as they delve further into Crypto.
- An Ethereum ETF will get approved.
- Eth2.0 continues to roll out smoothly.
- The network will continue to see massive use and adoption.
Now my price relationship between the two assets is a short term outlook for the coming year and could change. I am no math genius and am not using some complex financial method to reach this conclusion. Taking a macro view of things, I simply look at the current market conditions. Then I factor in historic prices, and add in some other variables. All of that helps me to come up with this 2021 Ethereum price prediction.
So to sum it all up, the Ethereum price in 2021 could be $2500. Much of this hinges on if Bitcoin gets to around $50k, and we see the approval of an ETF.
As always, I am not a financial expert and this is just my own opinion. Do your own research before making any investment decisions.
Analyst's Disclosure: I am/we are long ETH-USD.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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