As we head into 2025, Ethereum (CRYPTO: ETH) continues to lag behind other top cryptocurrencies. For the year, Ethereum is up only 17%, well off the pace set by Bitcoin (CRYPTO: BTC), which is now up 60%. Of perhaps even more concern, top Ethereum rival Solana (CRYPTO: SOL) is also up 60%.
That being said, there’s still a good case for buying Ethereum now, as long as you’re willing to take a long-term outlook. For example, investment firm VanEck put out a $22,000 price target for Ethereum in June. Today’s current Ethereum price is $2,680, which represents a stunning 720% return on investment. Let’s take a closer look.
The first thing you need to know about Ethereum is that it is not just a digital currency. It is also a blockchain ecosystem. Ethereum boasts a stunning $320 billion market cap because it has the largest blockchain ecosystem in the world, and it’s not even close. Whether it’s blockchain gaming, non-fungible tokens (NFTs), or decentralized finance (DeFi), Ethereum stands alone as the clear market leader.
According to VanEck, Ethereum is still on pace to deliver value within each of those verticals over the next five years. The standout area remains decentralized finance, where Ethereum can play an important role in reshaping the world of finance.
The key to this happening is Ethereum’s use of blockchain smart contracts, which enable the creation of financial products and services that are cheaper, easier to use, and more flexible than those available today. As Cathie Wood of Ark Invest has pointed out, trillions in dollars of value could migrate from traditional finance to blockchain finance, and that would be a huge win for Ethereum.
Image source: Getty Images.
Over the next few years, Ethereum likely will be able to find even more ways to deliver value. For example, VanEck suggested that sprinkling a bit of artificial intelligence (AI) over everything blockchain-related could create even more value. After all, the only thing better than a blockchain smart contract is a blockchain smart contract powered by AI. When you put it all together, Ethereum could theoretically hit a price of $22,000 by 2030.
However, keep in mind that the bullish $22,000 price forecast for Ethereum came out in June. That was just weeks after the new spot Ethereum ETFs had been approved by the SEC and more than a month before they officially began trading. At the time, all signs were flashing green, market sentiment was very positive, and Ethereum looked like it was going to skyrocket in value over the final months of the year.
But that simply has not happened. For one, the Ethereum ETFs have not been nearly as successful as the new Bitcoin ETFs. Secondly, there was the crypto “flash crash” in August, which significantly impacted investor perceptions of Ethereum. As a result, Ethereum is now down 33% from its intra-year high of $4,000 back in March.
Thus, on October 17, VanEck came out with a revised forecast for Ethereum. The firm says that its bullish $22,000 price forecast remains in place. But it’s now a best-case scenario, not a base-case scenario. The new base-case scenario is just $7,334. That’s a stunning 67% reduction in price forecast, so it bears further analysis.
The problem, says VanEck, is that Ethereum relies on a vast network of Layer 2 scaling solutions for speed, efficiency, and transaction processing ability. These Layer 2 solutions are now capturing as much as 90% of the revenue being created by the Ethereum blockchain. However, when VanEck originally ran its model, it assumed that Ethereum would be the one capturing 90% of the revenue. Thus, a 90:10 scenario has morphed into a 10:90 scenario. Yikes!
So, if you are thinking about buying Ethereum, there are two key factors to keep in mind. The first is the performance of the spot Ethereum ETFs. Optimally, it would be good to see investor inflows increase significantly as we head into 2025.
The second major factor is the relationship between Ethereum and its Layer 2 scaling solutions. The most popular of these scaling solutions are actually cryptocurrencies themselves, so it’s easy to track their performance in the crypto market.
If these cryptos are really cannibalizing significant revenue from Ethereum, then they should be soaring in price, right? But that doesn’t seem to be the case at all. In fact, quite the opposite. Immutable is down 26%. Optimism is down 53%. Polygon is down 62%. Arbitrum is down 62%.
From my perspective, it’s just a matter of realigning economic incentives, such that both Ethereum and its Layer 2 partners can benefit from growth in the underlying blockchain ecosystem. Right now, the whole system seems to be out of whack. Ethereum is struggling, and so are its blockchain partners.
While it might be more difficult for Ethereum to hit the $22,000 price target than originally thought, it’s still a possibility over a long enough time horizon. As a result, I remain long-term bullish on Ethereum.
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Dominic Basulto has positions in Bitcoin, Ethereum, Polygon, and Solana. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Immutable X, Polygon, and Solana. The Motley Fool has a disclosure policy.
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