Ether (ETH 0.13%), the cryptocurrency of the Ethereum blockchain, hit an all-time high of more than $4,800 in November 2021. That represented a whopping gain of more than 550% from the beginning of the year. At the time, many analysts believed it could go even higher. Bloomberg Intelligence analyst Mike McGlone predicted Ether’s price could reach $4,000 to $4,500 by the end of 2022. The crypto news outlet Coinpedia predicted its price could hit $6,500 to $7,500.
However, Ether actually ended 2022 at about $1,200. Rising interest rates drove investors away from cryptocurrencies and other riskier investments, while the failures of several high-profile tokens and exchanges tarnished the industry’s reputation. Many analysts have reined in their near-term forecasts for Ether, but the bulls still believe it could bounce back in 2023.
For example, CoinLedger CEO David Kemmerer recently predicted Ether could still rise to $2,500 in the first half of 2023 even as the crypto winter freezes other cryptocurrencies. Let’s see if that target is realistic, and if investors who buy Ether right now can potentially double their gains within a year.
Why should investors pay attention to Ether?
Ether differs from Bitcoin (BTC 0.17%) in three major ways. First, miners can only mine for Bitcoin on the Bitcoin blockchain. But on Ethereum, miners can mine Ether as well as other tokens. That open-source flexibility has facilitated the creation of many smaller altcoins. Ether can also still be effectively mined with high-end gaming GPUs, but Bitcoin now requires the usage of high-end ASIC miners.
Second, developers can create non-fungible tokens (NFTs) and decentralized apps (dApps) on the Ethereum blockchain. That makes Ethereum a central pillar of the Web3 (also known as Web 3.0) movement — which believes dApps will eventually disrupt centralized app ecosystems like Apple‘s App Store and Alphabet‘s Google Play — and support the expansion of a decentralized metaverse of applications and services. As the largest token on the Ethereum blockchain, Ether is the default currency of that universe, and its price could stabilize as the token is used to purchase more goods and services.
Lastly, Ether is a more environmentally friendly alternative to Bitcoin. Ethereum previously used the same energy-intensive proof-of-work mining method as Bitcoin, but it transitioned to the more energy-efficient proof-of-stake method last September. That transition, known as The Merge, reduced Ethereum’s energy consumption by about 99.95%. This could make it easier to scale up the Ethereum blockchain and support the development of more tokens, apps, and services. Meanwhile, Bitcoin’s carbon output already rose 126 times between 2016 and 2021, according to Scientific Reports, as it became increasingly difficult to mine new coins. In 2020 alone, Bitcoin mining consumed more electricity than all of Austria.
What’s the bullish case for Ether?
At the end of 2021, the bulls believed The Merge would drive Ether’s price to new highs. Instead, its price has actually dropped nearly 30%. The bulls believe that pullback is unjustified, and that Ether is merely being dragged down with the broader crypto market as interest rates continue to rise. They believe that Ether’s current price doesn’t reflect the benefits of The Merge or the long-term growth potential of the Web3 industry yet.
There’s also the possibility that Ether and Bitcoin will remain the only two cryptocurrencies left standing when the crypto winter finally ends. If that happens, their prices could finally stabilize and become viable assets for institutional investors. Those tailwinds suggest that $2,500 might be a realistic year-end target.
However, the crypto winter could also easily turn into an ice age. The failures of the Terra blockchain, the FTX cryptocurrency exchange, and other smaller altcoins are driving regulators to quickly tighten their grip on the cryptocurrency market.
A global recession could also finish off the entire cryptocurrency market, including Bitcoin and Ether, as investors completely lose their appetite for speculative investments. If that happens, Ether’s price could easily stumble below $1,000 again. Unlike stocks, there’s no clear way to fundamentally value Ether (beyond its last trade) to set a floor under its price.
Can Ether double by the end of 2023?
Ether’s price might stabilize this year as some investors cautiously return to the crypto market. But I also don’t expect its price to more than double to $2,500. The macro headwinds should remain intense and cause investors to broadly shun the crypto, Web3, and metaverse markets while stashing their cash in government bonds and safe haven blue chip stocks. Ether’s technological advances are impressive, but I don’t expect investors to get excited about NFTs or dApps again until the macroeconomic situation improves and a new bull market begins.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Leo Sun has positions in Alphabet and Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Bitcoin, and Ethereum. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy.