While Bitcoin is the world’s largest and most popular cryptocurrency, investors should keep in mind that there are thousands of other cryptocurrencies to consider.
The second-largest crypto by market cap is Ethereum (ETH), and its goal is to enable individuals to use digital money without the need for banks. It’s also programmable so it provides a rich marketplace for financial services, games, and applications built on a sensor-less internet.
While ETH isn’t in the news as often as Bitcoin, that doesn’t mean it’s any less worthy of an investment.
In this article, we’ll discuss five reasons to consider investing in Ethereum for your portfolio. If you’re new to the crypto space, or you’re someone that is looking to invest in Ethereum, then some of these reasons might surprise you.
1. Ability to Earn Interest with Staking
Ethereum’s recent upgrade to Ethereum 2.0 has moved the platform to a proof-of-stake network.
This requires users to stake their Ethereum to the network to help validate transactions. For your services, you’ll earn ETH as rewards, similar to earning interest. The more you stake, the more you earn with current participants earning about 10% annual yield on their staked ETH as a reward. This will fluctuate slightly depending on the number of stakers currently on the network.
2. Robust Use Case
Ethereum is often described as “digital oil” by providing a technology that enables new applications to be built on top of it such as digital art, decentralized gaming, crowdfunding through Initial Coin Offerings (ICOs), Stablecoins, and more.
One of the biggest use cases has been decentralized finance (“DeFi”). DeFi allows seamless peer-to-peer borrowing and lending without middlemen, thus stripping out the costly and time-consuming traditional banks.
These collateralized loans are enabled through Ethereum’s powerful smart contracts and don’t require any background checks or lengthy borrower contracts to set up. It’s instant and the interest rates are generally far better for the lender and borrower. Over $20 Billion is locked in DeFi contracts today.
3. High-Growth Possibilities
Today, Ethereum’s transaction volumes are at record numbers, showing just how useful the network has become. Ethereum is also known as the “world computer” and its core philosophy is to provide disruptive peer-to-peer applications. If successful, its scope is rather endless, with the potential to power as many applications as the mind can create.
Also, Ethereum futures contracts will start trading on the CME exchange in February 2021. This highly regulated US-based exchange can enable new, large institutions to invest in the project that may not have to be comfortable doing so with current spot market exchanges.
4. Portfolio Diversification
Diversification is the concept of spreading your investments around so that your exposure to any single type of asset is limited. This practice is designed to help reduce the volatility and balance the risk and reward of your portfolio over time.
Cryptocurrencies can be seen as a diversification asset because they may provide a hedge against inflation due to the government’s increasing money supply and mounting debt. Even among cryptocurrencies, an individual can diversity further with Ethereum and other cryptos, such as Litecoin and Bitcoin.
5. The Place for Decentralized Finance (DeFi)
Decentralized finance is the act of removing traditional banking institutions between two parties and enabling direct, peer-to-peer financial transactions to occur.
Today, with DeFi, consumers can seamlessly lend and borrow loans peer-to-peer without middlemen. These collateralized loans are enabled through Ethereum’s powerful smart contracts and don’t require any background checks or lengthy borrower contracts to set up. It’s instant and the interest rates are generally far better for the lender and borrower without the middleman.
Investors interested in researching cryptocurrencies can also consider Bitcoin, Bitcoin Cash, and Litecoin.
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