The pandemic changed the way people invest. Even seasoned investors are looking towards newer assets because traditional ones have failed to deliver them the profit they’re looking for.
If you’re reading this article, you most likely have researched the crypto sector extensively to determine if investing in a digital currency is the right decision. You probably know by now that Bitcoin and Ethereum are the most lucrative assets. Still, not all investors can afford to add them to their portfolios because they’re highly volatile and don’t fit into any traditional investment framework.
However, this article doesn’t talk about traditional portfolios but about balanced portfolios that provide traders with high returns on investment. Ethereum is one of the most popular digital currencies among investment portfolios because it offers diverse rewards. Investors often describe it as a cryptocurrency goldmine for diversifying efforts.
Are you intrigued to find out why investors purchase Ethereum?
Overview of Ethereum
Ethereum is a blockchain-based network that functions on a decentralized platform and supports smart contracts. Due to its features, it’s a highly attractive investment for investors interested in the crypto market.
Ethereum is groundbreakingly innovative because it’s based on blockchain technology, and unlike its old competitor, Bitcoin, it allows the execution of smart contracts and the development of decentralized applications.
Ethereum, similarly to all the other cryptocurrencies, functions on a decentralized network, so no authority or government can control its evolution. As a decentralized network, it facilitates cheap and fast money transfers and promotes activity transparency.
As the second-largest cryptocurrency in the sector, its value fluctuates intensely, which makes it ideal for investors who are not afraid to take risks. In the competitive crypto market, Ethereum has maintained its position as a beacon of innovation and attracted investors. It’s also a popular choice among developers because it has an adaptable nature and smart contract functionality.
Nonetheless, at the end of the bear market, many investors wonder if Ethereum will continue to be a reliable investment solution.
Factors that impact Ethereum’s trajectory
To navigate the intricate landscape of cryptocurrencies and understand if Ethereum will continue to be a profitable addition to a well-balanced portfolio, it’s best to have a look at the factors that influence its value.
Volatility
Digital currencies like Ethereum and Bitcoin are famous for their price volatility, so there’s no surprise that it’s one of the main factors that impact the asset’s evolution. Investors should ensure they have the necessary resilience to navigate the market dynamics and create strategies to allocate their resources in a way that allows them to manage the risk level.
Competitiveness
We mentioned earlier that the crypto sector is a highly competitive market, so Ethereum’s trajectory is also influenced by the other cryptocurrencies’ performance. Ethereum might be the largest altcoin by market cap, but it’s not the only actor in the crypto arena. Over the last years, digital currencies like Solana, Polygon, Cardano, and Binance Smart Chain have been named Ethereum killers because their features offer them a competitive edge against Ethereum. Investors should perform a comparative analysis to identify the best digital assets for portfolio diversification. It might be a great idea to invest in Ethereum and its killers.
Regulations
The regulatory landscape for digital currencies is changing continually, which greatly impacts the sector. Investors must stay up to date with these changes to predict how Ethereum will be affected.
Security
All blockchain-based cryptocurrencies are secure, but Ethereum is listed among the digital assets prioritizing security and employing best practices to safeguard its users. Blockchain technology makes it impossible for cybercriminals to interfere with transactions.
What is Ethereum’s role in a diversified portfolio?
Investors willing to take the risk could benefit from ample profit. However, it’s crucial to note that Ethereum’s performance in its investment portfolio will change over the following years. If in the past it was challenging to tell how things will go for a digital currency or another, nowadays it’s easier to track the market movements because the cryptocurrencies’ volatility has eased a little, and they moved more into the mainstream. For example, Bitcoin’s volatility dropped from 107% in 2020 to 19% at present, and while it’s still high compared to other assets, it looks more attractive from an investment portfolio’s perspective.
Ethereum’s role in an investment portfolio is connected to the shifts of the market. Ethereum had a low correlation with the major assets in the last five years.
Ethereum has the potential to trigger high returns
Adding Ethereum to an investment portfolio increases the chance of making a high return on investment. Like Bitcoin, it also registered significant price growth in the last bull run, and numerous investors made substantial profits. In 2020, its value increased by 400%, offering lucrative opportunities.
Ethereum makes diversification easier
Investing in a blockchain-based asset like Ethereum offers the potential for diversification to a traditional portfolio. Purchasing Ethereum reduces the risk associated with investing in digital assets, especially in the present context when traditional investments like bonds and stocks don’t offer enough stability. Ethereum is defined as an alternative investment solution that functions independently of conventional financial markets.
Ethereum has multiple use cases
Ethereum witnessed an increased adoption over the last years, especially due to its diverse use cases, becoming one of the most attractive cryptocurrencies to have in an investment portfolio. Private and institutional investors utilize Ethereum for numerous purposes, increasing the demand for its native token, Ether.
Any increase in its demand will trigger a rise in the price of Ethereum, providing investors the chance to gain a return on their investment. In addition, the increasing adoption of Ethereum in decentralized finance applications also offers the opportunity to make a profit.
Wrapping up
Adding Ethereum to any investment portfolio comes with numerous risks and rewards. The potential of bringing a high return on investment is definitely enticing for most investors, but it’s paramount to consider the security risks, regulatory uncertainties, and market volatility associated with purchasing cryptocurrencies.
For now, Ethereum remains one of the most lucrative digital assets to have in an investment portfolio.
