Analysts are bullish long-term, predicting that stablecoin adoption could drive growth.
Ethereum (ETH +0.10%) is under pressure. It has fallen by more than 30% year to date — the worst start to a year since it launched in 2015. There’s increasing talk of a crypto winter, and unfortunately, it looks like things could get worse before they get better. Yet there are good reasons to think matter will improve.
A recent note from Standard Chartered (STAN 3.22%) says that Ethereum could fall to as low as $1,400 before rebounding. Ethereum now trade for about $2,000, suggesting it could fall by another 30%.
The investment bank sees further near-term losses for major cryptocurrencies, citing sinking values of cryptocurrency exchange-traded funds (ETFs) holdings, meaning that many holders are underwater. Prices are unlikely to recover until the Federal Reserve lowers interest rates further, which doesn’t look likely until at least June.
For all the price pessimism and low trading volumes, last year’s progress in both legislation and adoption put Ethereum in a better position than it’s ever been. Last year, the value of the stablecoin market increased from about $200 billion to $300 billion, as these tokenized versions of traditional currencies and other assets gained traction.
About half of all stablecoins use the Ethereum blockchain. As more transactions move on-chain, Ethereum is likely to see more usage and more funds on its ecosystem. That plays a big part in Standard Chartered’s long-term optimism about the lead programmable cryptocurrency. It thinks Ethereum could reach $4,000 by the end of the year and $40,000 by 2030. That implies growth of almost 2,000% in four years.
Technical upgrades to make Ethereum more scalable will be crucial. As banks and payment processors adapt to stablecoins and other tokenized assets, Ethereum needs to be able to handle what could be substantial growth. That sheds a different light on its December Fusaka upgrade, which improves Layer 2 processing. Layer 2 blockchains sit on top of a primary blockchain like Ethereum to enhance processing capabilities.
Another potential tailwind? Regulatory progress. The Senate is debating a market structure bill called the Clarity Act, which may pass this spring. Cryptocurrencies are more likely to turn the corner faster if the government passes further cryptocurrency legislation that sets out where digital assets fit in the wider investment landscape.
There are still structural, regulatory, and technical risks ahead, but Ethereum’s strong utility in on-chain finance is a reason for optimism. Assuming some traditional financial firms use Ethereum as they explore blockchain solutions, Ethereum is likely to grow.
If you think Ethereum has long-term potential, it’s still important that crypto makes up only a small portion of your portfolio. The crypto market historically recovers from prolonged price dips before, but it is still a relatively untested asset class, and there are no guarantees.
The challenge for investors is that it’s almost impossible to know when any turnaround might take place. There aren’t any obvious recovery triggers on the immediate horizon. That means there’s certainly no rush to buy the dip, because prices could sink further. Just don’t wait forever — attempting to time the market can leave investors on the sidelines and mean they miss out on future rallies.
