Can Ethereum Reach $5,000? | The Motley Fool

As stock markets benefit from a recovery year in 2023, so has the cryptocurrency market.

Ethereum (ETH 0.16%) It is up almost 30% this year, after falling 68% in 2022. But as it is still significantly below its peak, some enthusiasts expect big returns in the coming years.

At the time of writing, the price of Ethereum stands at around $1,500. To reach the $5,000 mark, that would translate to a gain of approximately 230%. Is this even a possible scenario? Let's take a closer look at this top. digital asset.

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Ethereum's all-time high price was approximately $4,892, which was set in November 2021. At that time, the token's price skyrocketed 153,000% from its initial launch date in mid-2015. Some lucky early adopters struck it rich .

But it is worth noting that this huge price increase occurred during a major bull market in both the stock markets and the cryptocurrency industry. Monetary policy was still loose after the worst of the coronavirus pandemic.

Since then, it's been a rocky road for investors. Ethereum is currently 68% below its peak price. The so-called "crypto winter" was in full effect after a number of companies in the sector failed. The rapid rise in interest rates has also put pressure on riskier assets.

While it is impossible to predict, investors cannot ignore macroeconomic factors. They can influence Ethereum price action both positively and negatively.

The case of the bull

Ethereum certainly has enormous potential, according to the most supportive bulls.

Thanks to the added functionality and programmability of smart contracts, Ethereum is trying to become the world's decentralized computing platform. This blockchain innovation allows two parties to transact for different use cases without the need for an intermediary. If it achieves broader adoption, industries known for having expensive intermediaries will be prone to disruption.

Use cases so far have included various decentralized applications, such as financial protocols and non-fungible tokens (NFTs). While activity here has cooled off, developers continue to work to try to improve the network. According to a report from venture firm Electric Capital, Ethereum has 1,901 active developers working on it, significantly more than any other cryptocurrency. This bodes well for their ability to make progress.

Speaking more about the development aspect, The Ethereum merger The update is what many consider a positive step, particularly when it comes to scalability. Ethereum can only process 11 transactions per second, and when demand is high, transaction fees can skyrocket.

The Merge transitioned from Ethereum to a proof of stake (PoS), which can reduce energy expenses and set you up for future scaling. Future updates could add more capabilities to Ethereum. And in turn, this could drive usage and demand for the token, causing its price to rise.

Reasons to avoid Ethereum

As with any unproven asset or new technology, there is a lot of uncertainty surrounding the final outcome.

With any cryptocurrency, there is always inherent technical risk. What happens if there is a bug in the software code that exposes private keys? Then everyone's cryptocurrency holdings can be stolen.

In the case of Ethereum, its complex development roadmap introduces the potential for mistakes. This means that its technical risks are even higher compared to a simpler and more straightforward cryptocurrency like bitcoin.

One of the biggest arguments in favor of Ethereum is that it is becoming more centralized, which goes against the entire premise of cryptocurrencies as tools for decentralization and for returning power to users. The PoS consensus mechanism leads to larger groups of token holders controlling transaction processing.

Furthermore, a single person, co-founder Vitalik Buterin, has great influence over the direction of Ethereum. He can make decisions that benefit him at the expense of the average Ethereum user. And this can be detrimental to the integrity of the network.

Ethereum is promising, but uncertainty remains very high. So I think investors expecting the token to reach $5,000 should temper expectations. Unless wild enthusiasm takes over the cryptocurrency market again, that's a very high price target to set your sights on.