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3 Ethereum Investment Strategies You Need to Know

ethereum

Ethereum and Bitcoin have become household names when it comes to cryptocurrency. While they're often mentioned in pairs, they're far from being similar. While Bitcoin was created as an alternative, decentralized currency. Ethereum on the other has a bigger goal. It intends to create a software platform that not only favours cryptocurrencies but any kind of decentralized application that can run without the need of a third party. Ether is one of the most popular cryptocurrencies, however, a lot of people are still in a dilemma about how to invest their money in Ethereum or is it even a smart choice to do so. 

If you have been thinking about investing in Ethereum, then this article is your boon in disguise. So read on! 

What is Ethereum?

Ethereum is an open-source, decentralized platform network. The Ethereum network functions like the Bitcoin network. This means that it's built on blockchain technology. It is a digital public ledger where financial agreements can be assessed. They are then stored by software — without any intervention of a third party. 

The easiest way to think of the Ethereum network is as a secure database that can be accessed by anyone. In this system, new blocks of data get added. Further, they're cryptographically "chained" to the parent block, effectively creating an un-editable record of the prior changes. Ethereum is regarded as one of the largest cryptocurrencies because ether is the second largest crypto next to bitcoin by market capitalization.

What makes Ethereum so exhilarating to users and fanatics is the network's potential to do more than just handle financial transactions. Ethereum takes the Bitcoin blockchain further by enabling developers to operate programs (known as "smart contracts") that can host any aspect of decentralized applications.  (known as "dApps"). People have created and launched a variety of dApps on Ethereum, including blockchain games, marketplaces for digital art (or NFTs), and decentralized finance (Defi) apps. 

However there are some demerits to this system as well, the decentralized system can lead to more anonymity for users. In addition, it can also result in less control and censorship from third parties, including corporations and governments. 

Why Should You Invest In Ethereum?

Ethereum could be one of the most successful cryptocurrencies in the years to come. It experienced explosive progress, with its price increasing by more than 1,000% over the past 12 months. (As of September 2021). While crypto prices have plunged over the past few weeks, that doesn't necessarily mean this is the wrong time to buy. Downturns can deliver a great alternative to invest when prices are lower. 

Keeping in mind that Ethereum is one of the higher-priced cryptocurrencies, right now may be a good time to buy when it's "on sale." We mean come on, when have Indians bought anything when it's not on a sale anyway. 

Another reason why you should consider buying Ethereum during this time is that the upcoming Ethereum 2.0 could give the currency a competitive advantage.  Recently, Tesla CEO Elon Musk announced that the company will no longer accept Bitcoin as a form of payment because of the impact that it leaves on the environment. This announcement was one of the factors behind the most recent crypto crash. As it made investors question whether cryptocurrency could prosper over the long term. 

However, Ethereum is making moves to make the technology more energy efficient. Just to get the confusion clear, Ethereum is the name of the blockchain technology, while Ether is the token that is hosted on that blockchain. Ethereum 2.0 is an updated version of the blockchain that's set to roll out later this year or early next year, and it claims to use 99.95% less energy than the current technology. In addition to this, the Ethereum blockchain has more real-life utility which gives it an upper hand in surviving long term.

Investment Strategies For Investing In Ethereum 

#1 SIPs

Several financial experts suspect that after contemplating all the risks and volatility, SIP may be a preferred route for building wealth through cryptocurrencies for first-time investors. As put by Dr Vinay Asthana, Associate Professor at Alliance School of Business in an interview with FE Online, “The key advantage of a systematic investment plan (SIP) is that the problem of timing the market is rendered irrelevant." This makes SIP a beneficial strategy in the wake of market volatility. 

#2 Dollar Cost Averaging

This is a strategy where an investor invests the total amount of money in small increments over time instead of all at once. The goal is to take advantage of market downturns without risking too much capital at any given time.

DCA is formulated to help counteract any negative effect on an investment induced by short-term market volatility. If the price of an asset drops when you are dollar-cost averaging, then you stand to make a profit if the price moves back up. If you’re not very well versed with cryptocurrency yet,  Dollar Cost Averaging can save you the effort of trying to time the market to get the best stock prices.

#3 Trading 

Cryptocurrency trading is the act of speculating on cryptocurrency price movements via a CFD trading account, or buying and selling the underlying coins via an exchange. However, this strategy requires a lot of experience and we would not recommend this for novice investors. 

CFD trading is derivatives, which facilitate you to speculate on cryptocurrency price movements without having to take ownership of the underlying coins. Depending upon your understanding of the market. You can choose to go long (‘buy') if you think a cryptocurrency will rise in value, or short (‘sell’) if you think it will fall.

Conclusion 

While investing in cryptocurrency might not be everybody's cup of tea, it is one such industry that helps you bag huge profits if handled correctly. The above strategies can help you get started on your investment journey in the crypto industry as most of them are considered "safe" however there or for that matter, any other blockchain-based currency is very volatile and always subject to market risk. One should always handle such investments with caution.

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Nischal Shetty

Nischal Shetty

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