After investing in Bitcoin, it’s natural to start looking at Ethereum to increase your returns even more, but is it safe to invest in Ethereum?
Yes, it is safe to invest in Ethereum. It is risky, of course, but it is safe. Ethereum has an attractive risk to reward ratio at the moment, due to it’s technological upgrades, institutional adoption, technical price patterns and more.
I get this question all the time, and I can’t believe how many investors miss out on Ethereum, due to worries about Ethereum investing being safe or not.
Stick around, and I’ll give you the reason as to why Investing in Ethereum is safe:
Yes, Investing in Ethereum is Safe
Most people investing in Ethereum have no idea what they’re doing. Investing in Ethereum is safe, as long as you do it right.
Follow these steps to make investing in Ethereum as safe as possible:
1) Formulate a strategy. You need a goal, and clear steps to reach that goal.
The best way to do this to figure out at what prices you’re going to sell your Ethereum, how much Ethereum you’re going to buy, and how you’re going to buy it.
2) Actually do it – take action!
You wouldn’t believe how many people tell me about their plans to invest in Ethereum, who never actually get’s the job done.
Below you see an example of what a decent Ethereum investment strategy looks like, making it much safer:
Investing in Ethereum without a plan of action, often becomes an emotional choice, which stops many people from pulling the trigger.
This is why you need to create a strategy, like the example above. It removes the emotions from the equation. It lets you make investment decisions based on logic and analysis, which is much better, and safer, in the long run.
In other words:
You need to develop a well formulated strategy including what price you’re going to sell at, how much Ethereum you’re going to buy, and how you’re going to buy it (like what exchange, what date, etc.).
This way, it is safe to invest in Ethereum. However, there are still risks associated with the investment.
The Risk of Investing in Ethereum
Even though Investing in Ethereum is safe, it still carries risk, as all crypto investments do.
To really understand the risks associated with investing in Ethereum, this is what you need to know:
When investing in cryptocurrencies other than Bitcoin, there are two major risks:
1) Bitcoin might crash, dragging down the market with it (because Bitcoin is the market mover)
2) The risk that the specific coin, in this case Ethereum, might fail.
The risk of Bitcoin crashing is not the topic of this article, to learn how to tell if the Bitcoin bull market is coming to an end, read this article.
The second risk is what we’ll focus on, as that’s the relevant one in this case.
So, what exactly are the risks of investing in Ethereum?
There are mainly two risks; the blockchain being hacked, and competitors catching up.
Risk 1 – The Ethereum Blockchain Being Hacked
This is not likely. Ethereum is the second most secure blockchain, after Bitcoin, due to it’s high “hash rate“.
Hash rate is the total amount of computing power working to secure the blockchain, and validate transactions.
Basically, it’s a number that tells us how hard it is to hack Ethereum.
We want this number to be high, as this makes Ethereum more secure, and safer to use.
Luckily for us, this number is high, and accelerating quickly.
Check out the graph below, the blue line is the “hash rate” – the number that tells us how secure the blockchain is.
If you want to understand more about “mining” and what the “hash rate” is, read this article: What is Blockchain Technology?
As you can see, it’s at an all time high. This means that the Ethereum blockchain has never been more secure, and safer to use. This is great for investors, and makes the risk of a hack lower than ever before.
Risk 2 – Competitors catching up
This is always going to be a risk, as competitors like Cardano, Binance Smart chain and DOT generally have better tech, and faster blockchain.
Most new cryptocurrency investors stay away from Ethereum, in favor of its competitors, investing in projects like Cardano.
This is often justified with “oh, but the tech is 100x better, and Ethereum is to slow”.
Which are valid points, in all fairness. However, there’s more the Ethereum than meets the eye:
The fact is, that Ethereum is WAY ahead of it’s competition when it comes to adoption, which arguably is the most important factor of success in this market.
Adoption means to be accepted and used by people and businesses.
When people ask me about the adoption of Ethereum, I usually tell them about “EEA“:
EEA stands for “Enterprise Ethereum Alliance” – a group of companies who work together to make Ethereum better for business, and accelerate adoption.
There are some huge names in EEA, like Microsoft, J.P.Morgan and Santander, who work together to improve Ethereum, and make it better for business.
Even better, we’ve seen governments discussing the possibility of writing their laws on the Ethereum blockchain.
None of the competitors have adoption levels even remotely close what Ethereum has at this point, making it a much better option for investors who seek lower risk cryptocurrency investments.
Below you see the difference in market capitalization (total value of all coins combined) between Ethereum and its competitors:
The fact that Ethereum is five times as big as it’s closest competitor, and that the adoption of Ethereum is way beyond any of the others, builds strength in my belief that it is safe to invest in Ethereum.
The Potential Returns of Investing in Ethereum
Great, so now we’ve established that Ethereum is a low risk investment, relative to other cryptocurrencies, and that it’s safe to invest in.
However, it’s also important to know what return might be expected by investing in Ethereum.
To figure out the expected returns, you need to get out your calculator. Also, the expected returns of investing in Ethereum depends on the current price, which I unfortunately can’t check for you, as I’m writing this in the past…
Calculate the expected returns like this:
1) Make an Ethereum price prediction, mine is $8000 by the end of 2021.
2) Figure out the current Ethereum price, which you can check by clicking here
3) Pull out you calculator, and calculate the following:
Predicted price / Current price = Potential Return on Investment
If you want to get it in percent, you need to subtract one and multiply with hundred.
Great, now you’ve got the expected returns of investing in Ethereum. Again, by dividing the predicted price by the current price.
This way of calculating the expected returns of an investment works for not only Ethereum, but most, if not all, assets.
Has Investing in Ethereum Been Profitable in the past?
Ethereum has proven to insanely profitable in the past. The returns we saw in 2016-2017 was absolutely brain melting.
WARNING: The feeling of having missed out might hit you if you read this paragraph…
Let me show just how much Ethereum surged in the previous bull market.
That right, in 2016-2017 Ethereum surged over 153 000 percent.
If you invested $2500 in the beginning of 2016, and sold at the end of 2017, it would turn into:
$2500 * 1530 = $3 825 000
Well, I warned you… We sure missed out on a huge opportunity.
Is it too late to buy Ethereum in 2021?
No, you’re still early to the party. Ethereum is still young, and have huge growth potential.
It will, most likely, be the go-to cryptocurrency for businesses and institutions, which will make the price of Ethereum surge to highs we’ve never seen before.
However, you’re never going to see the kind of returns we had in 2016-2017. The days of 150 000 percent gains in two years are over. It’ll probably look more like 1000% – 5000%, which is a great return.
Actually, the fact that Ethereum has seen it’s most explosive growth already, and will never experience something like the above ever again. However, the risk is exponentially lower as well:
In 2016-2017, Ethereum was only “a dream”, an unfinished project with promise of being adopted.
Over time, it has seen adoption and growth, making it a lot less risky, but at the same time, capping the potential returns one might expect.
If you ask me, it’s actually a better investment now, than it was in 2016.
Yes, I know, I just told you that the most explosive growth is in the past, and that we’ll never see anything like that surge ever again However, the risk way too high for most of us to even consider investing in Ethereum at that time.
I conclude with this:
Ethereum is a safe investment, given that you have a well-formulated strategy. It is low risk, relative to other cryptocurrencies, and has a high potential return. Even though we’re never going to see price-explosions like the one in 2016-2017, it is not to late to invest in Ethereum.
If you liked this post, please share it on Facebook – it helps me out a lot!