It has been a rough year for Ethereum (CRYPTO: ETH) holders. Up barely 5% year to date, Ethereum's performance pales in comparison to some of its peers like Bitcoin, which has surged nearly 50%, or Solana, which has jumped 40%. With Ethereum's performance lagging, it has left many investors (even myself) wondering if it still holds the potential it once did.
However, there are several reasons to believe that the tide could be changing soon for Ethereum. In fact, three key tailwinds hint at a much brighter future for this heavyweight. Here are three reasons why now might be the perfect time to consider buying Ethereum before 2025.
The first reason to buy Ethereum is rooted in Bitcoin dominance, a key metric that can tell us where we are in the cryptocurrency market cycle. Bitcoin dominance refers to Bitcoin's share of the total cryptocurrency market capitalization. When Bitcoin dominance is high, it usually indicates that Bitcoin is outperforming the rest of the market, especially altcoins like Ethereum. This metric tends to fluctuate in cycles, and when it's at a peak, it often signals that the market may be poised for a shift.
At the time of this writing, Bitcoin dominance is at a multi-year high, having climbed steadily over the last two years. Historically, when Bitcoin dominates the market for an extended period, the altcoin market, including Ethereum, tends to struggle. During these times, investors flock to Bitcoin as a "safe haven" during uncertain periods, preferring it over riskier altcoins.
However, this can't go on forever. We are likely approaching the point at which Bitcoin dominance begins to recede. When Bitcoin dominance falls, the capital typically flows back into altcoins, leading to a so-called "altcoin season."
Ethereum, being the second-largest cryptocurrency by market cap and the leader in decentralized finance (DeFi), is well positioned to benefit when this shift happens. If history is any guide, Ethereum could be in for a significant run as Bitcoin dominance declines.
The second reason to buy Ethereum has more to do with macroeconomic conditions -- specifically, the Federal Reserve's recent decision to cut interest rates. This move signals a potential shift toward a more risk-on environment, which could drive capital into more speculative assets like cryptocurrencies.
When interest rates are cut, investors are incentivized to move away from low-yielding assets (like bonds) and seek out higher-risk, higher-reward opportunities. Cryptocurrencies, especially those tied to DeFi platforms like Ethereum, stand to benefit from this shift.
The last time the Federal Reserve pivoted from rate hikes to rate cuts was in 2019. This initiation of a rate-cutting cycle essentially marked the bottom of Ethereum's dismal performance and laid the foundation for Ethereum's next leg up. While it wasn't just up only thereafter, from those first rate cuts in August 2019, Ethereum slowly began to recover and build momentum, going on to hit a new all-time high in 2021.
The final reason to buy Ethereum is more anecdotal, but it's something that's hard to ignore: The market is hungry for a catalyst. Ethereum, despite its influence and importance, has been struggling in comparison to other cryptocurrencies. Its price is far below its all-time high of $4,800, and it has underperformed relative to peers, as previously mentioned.
However, this underperformance doesn't reflect Ethereum's real-world usage and its influence as the most widely adopted and liquid blockchain. Processing millions of transactions daily, Ethereum's smart contract functionality has built an entire decentralized economy, from DeFi to NFTs to the tokenization of real-world assets.
Given this wide range of applications, there's a growing sense of fatigue within the market as Ethereum's price doesn't seem to match its real-world significance. Whether Bitcoin dominance falls or macroeconomic shifts like interest rate cuts trigger a resurgence, to put it simply, Ethereum is overdue to play a bit of catch up. With a network as established and versatile as Ethereum, any significant spark could be the catalyst that reignites investor confidence.
It might not happen immediately, and there could be some additional downside in the short term. But when you consider the current state of Bitcoin dominance, the macroeconomic environment, and Ethereum's position as a foundational blockchain, it becomes clear that Ethereum is still a premier asset in the crypto space.
As such, I am confident that Ethereum has the potential to reclaim its former glory and that this phase of bearishness will be looked back on as a small speed bump in its overall growth trajectory. With its price currently hovering around $2,400, there is plenty of room for upside, especially when considering that cryptocurrencies often notch new all-time highs during bull markets.
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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.