This year has been a tough year. Ethereum (Crypto: ETH) holder. Up just 5% year-to-date, Ethereum's performance pales in comparison to some of its peers, including: Bitcoinsoared nearly 50%, or Solanaup 40%. Ethereum's lagging performance has many investors (myself included) wondering if it still holds the potential it once had.
However, there are several reasons to believe that the tide could soon turn for Ethereum. In fact, three key tailwinds point to a brighter future for the heavyweight. Here are three reasons why now may be the best time to consider buying Ethereum before 2025.
1. Bitcoin’s dominance is at a local high
The first reason to buy Ethereum is rooted in Bitcoin's dominance. Bitcoin's dominance is an important indicator of where it is in the crypto market cycle. Bitcoin dominance refers to Bitcoin's share of the virtual currency's market capitalization. A high Bitcoin advantage usually indicates that Bitcoin is outperforming other markets, especially altcoins such as Ethereum. This indicator tends to fluctuate in cycles, and its peaks often indicate that the market may be ready for a shift.
As of this writing, Bitcoin dominance is at a multi-year high and has been steadily rising over the past two years. Historically, when Bitcoin dominates the market for an extended period of time, the altcoin market, including Ethereum, tends to struggle. In times like these, investors flock to Bitcoin as a “safe haven” during times of uncertainty, preferring it to riskier altcoins.
Image source: TradingView
Data by TradingView.
However, this cannot continue forever. We are probably nearing the point where Bitcoin's dominance begins to recede. When Bitcoin's dominance declines, funds typically move back into altcoins, starting what is called an “altcoin season.”
As the second-largest cryptocurrency by market capitalization and a leader in decentralized finance (DeFi), Ethereum is well-positioned to benefit when this change occurs. If history is any guide, Ethereum could see a significant drop as Bitcoin's dominance declines.
2. Federal Reserve Rate Cuts
The second reason to buy Ethereum has to do with the macroeconomic situation, specifically the recent decision by the Federal Reserve to cut interest rates. The move signals a possible shift to a more risk-on environment, potentially leading to an influx of funds into more speculative assets like cryptocurrencies.
When interest rates are lowered, investors are encouraged to move away from low-yielding assets (such as bonds) and seek higher-risk, higher-reward opportunities. Cryptocurrencies, especially those tied to DeFi platforms like Ethereum, will benefit from this change.
The last time the Fed shifted from raising interest rates to lowering them was in 2019. The start of this rate cut cycle essentially marked the bottom of Ethereum's dismal performance and laid the foundation for Ethereum's next step up. Not only did it rise after that, but since the first rate cut in August 2019, Ethereum slowly recovered and gained momentum, hitting new all-time highs in 2021.
3. Market sentiment is ready for change
The final reason for buying Ethereum is more anecdotal, but it's hard to ignore. That's because the market is looking for a catalyst. Despite its influence and importance, Ethereum continues to struggle compared to other cryptocurrencies. Its price is well below its all-time high of $4,800, and as mentioned above, it is also underperforming compared to its peers.
However, this underperformance does not reflect the actual usage of Ethereum and its influence as the most widely adopted liquid blockchain. Processing millions of transactions every day, Ethereum’s smart contract capabilities have built entire decentralized economies, from DeFi to NFTs to the tokenization of real-world assets.
Given this widespread use, there is a growing sense of fatigue within the market as Ethereum's price does not seem to match its real-world significance. Whether Bitcoin's dominance declines or macroeconomic changes such as interest rate cuts trigger a resurgence, the short answer is that Ethereum is a little slow to catch up. With a network as established and versatile as Ethereum, any major catalyst can be a catalyst to reignite investor confidence.
final thoughts
That may not happen right away, and there could be further downsides in the short term. However, considering the current status of Bitcoin's dominance, the macroeconomic environment, and Ethereum's status as the underlying blockchain, it becomes clear that Ethereum remains the best asset in the crypto space.
As such, I believe Ethereum has the potential to return to its former glory and will look back on this bearish phase as a small acceleration in its overall growth trajectory. Its price is currently hovering around $2,400, with plenty of upside potential, especially considering that cryptocurrencies often hit new all-time highs during bull markets.
Should you invest $1,000 in Ethereum right now?
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RJ Fulton 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.
