Ethereum has not had a good start to 2022. Its price has continued the bearish trend that started in November 2022 when its price jumped to almost $5,000. It is trading at $2,700, which is about 45% below its all-time high. In this article, we will look at the five key things to consider before buying Ethereum in 2022.
Monetary policy
Bankless Times has published widely about the correlation of the American monetary policy and the prices of key assets like cryptocurrencies and stocks. In summary, risky assets like digital currencies tend to do well in a period of easy monetary policy.
For example, the recent cryptocurrency rally was due to the fact that the Fed decided to implement an expansionary policy to support the American economy. To achieve that, the bank slashed interest rates to near 0% and then started its quantitative easing (QE) policy. With QE, its balance sheet more than doubled from about $4.5 trillion to $9 trillion.
Therefore, Ethereum prices will depend on how aggressive the Fed will become in 2022 as it tries to stem the rising consumer prices. An aggressive Fed will be bearish for Ether and other cryptocurrency prices.
Competition
Ethereum is a layer 1 platform that enables people to build decentralized applications (dApps) of all kinds. Today, it has been used to create apps in the Decentralized Finance (DEFI), Non-Fungible Token (NFT), and metaverse industries.
However, competition in Ethereum’s industry has intensified, with some of its contenders raising millions of dollars from venture capitalists. Examples of its biggest competitors are layer 1 projects like Solana, Binance Smart Chain (BSc), Polkadot, and Cardano among others.
These Ethereum competitors have better features such as fast speed and lower costs. Therefore, before you buy Ethereum, consider how it is dealing with this competition.
Ethereum upgrade
Another thing you need to know is the ongoing upgrade to Ethereum’s network. The platform’s developers identified the challenges that the network is facing like slow speeds and high costs.
As a result, they started the upgrade process to move Ethereum from a proof-of-work to a proof-of-stake platform. This means that in future, new blocks will be created using consensus among validators instead of manual mining.
The upgrade has been going on well and in 2021, they implemented the London hard fork that introduced new features like faster speeds and burning. The Beacon Chain was also launched.
In 2022, the developers will implement The Merge, where mainnet Ethereum will be combined with the Beacon Chain. This process will introduce staking and end energy-intensive mining. In 2023, the developers will introduce shard chains.
Therefore, in 2022, you should pay close attention to these developments to see how they will impact Ethereum prices.
The Metaverse
The metaverse was one of the key themes in 2021. It became so popular that large companies like Microsoft, Facebook, and Nvidia unveiled their strategies of becoming leaders in the industry. At the same time, many developers launched their metaverse projects.
Some of the most popular ones like Axie Infinity and Decentraland were all built using Ethereum’s network. And many developers are currently building their metaverse projects in areas like finance and sports.
There have been some mixed reactions about the metaverse. Some analysts believe that it is the future of computing while others expect it to fizzle away soon. Indeed, a closer look at the number of transactions and activity in popular platforms has started to fall. Therefore, you should watch the trends in this industry in 2022.
NFTs and DeFi
NFTs and DeFi are two industries where Ethereum dominates. A quick look at the biggest projects in the two industries shows that they are all built using Ethereum. For example, OpenSea, the leading player in NFTs uses Ethereum while Curve Finance was initially built using the platform. The two sectors have seen remarkable growth in the past few years.
Some industry watchers believe that the two have moved into a bubble territory and that their prices will start falling in the future. If the so-called bubble bursts, it could have an impact on the overall price of Ethereum.
Other players believe that we are in the early days of a major shift that will have an impact in the art and finance industries. For example, according to DeFi Llama, Ethereum’s DeFi ecosystem has a total value locked of over $100 billion. This is a remarkable figure since the industry was worth almost zero a few years ago.
Summary
Ethereum has been one of the best investments in the past few years. Its price has managed to move from below $5 to more than $3,000. Now, with liquidity tightening, 2022 will be an important year for the coin and other cryptocurrencies. In this article, we have looked at the five key things to watch in 2022 before you invest in Ether.