Ethereum’s Future

Could Ethereum’s Value Really Drop to Zero?

In a real sense, ethereum is a lot like Dutch tulips, which derived their value from the mad amount of speculation that occurred at one time, driving up the price to an extent that a few tulips could be exchanged for an entire farm.

Lest we panic and think that the two situations are similar though, with Ethereum being exposed to a similar fate, seeing it reduced to being virtually worthless, ethereum doesn’t suffer from the ridiculousness of pricing a good this high that is readily produced such as tulips, as the supply of ethereum is limited and tightly regulated to the extent that the supply side doesn’t really influence the price.

This is similar to gold, whose supply doesn’t change very much, and we only see a small percentage of the overall above ground supply get increased each year. With tulips, if they are worth thousands of dollars each, people would just grow a lot more of them and this additional supply would serve to normalize prices, in other words, crash the market.

In some respects, the massive growth of the value of ethereum and other cybercurrencies can be compared to the rise and fall of the Dutch tulip market, but we need to be clear on what the similarities and differences really are before we can make the dire predictions about ethereum, bitcoin, and the other major digital currencies that some have made.

In a sense, it may be seen as quite ridiculous that gold would be worth $1200 an ounce, because while it does have its uses, it’s nowhere near that valuable from a practical standpoint. The real reason why gold is worth this much is that people are willing to pay this much, but that is more than enough.

People also may be willing to pay millions of dollars for a certain painting, and we can’t really say that the painting would be worth more than a few dollars at most, other than the fact that a famous person painted it and people are willing to pay that much for this.

We could dupicate the painting to be identical to the original but this copy would only be worth a tiny fraction of the original, so this really does come down to the mere fact that some people are just willing to pay a lot more for certain original paintings. This indicates that its value is in no sense intrinsic, it is all artificial.

A lack of intrinsic value therefore should not be a concern, provided that there is sufficient interest in it and the supply is fixed. A valuable original painting has its supply fixed to one, where an unlimited amount of copies could be produced. Ethereum, like gold, has both components, tulips had the interest but not the supply management and therefore was doomed to return to normal market prices once the fever wore off.

It is of course possible that ethereum could become worthless due to both investor interest and interest in it as a currency completely disappearing, but we can expect at least some of both of these elements to persist, especially the interest in it as a currency and as part of its overall digital solutions package.

While this still may mean that there may be great risk in buying it at today’s prices, and there’s no doubt about that if one is planning on just holding it through any decline, ethereum is very unlikely to go away and will probably always be worth something.

Is Ethereum Just a Fad?

Digital currencies have been fashioned with gold as a reference, and are even referred to as digital gold. The gold market has been around and has survived for thousands of years, and there’s no reason why it will ever collapse to nothing, even though it could in theory.

We would never refer to gold as a fad and it is as far away as a fad as there is. This is due to gold’s extremely long history though. What about ethereum, which has only been around for a very short time?

The coins are in play now though and people have stepped up with what is a huge amount of money to participate. Cybercurrencies may only exist in the digital realm but when real money is used, this makes them very real indeed.

There’s no good reason to think that ethereum won’t be around for a very long time because people will likely continue to invest in it, and over time, use it as a currency more as well.

As far as its potential for just going away, this is not just like a company which may one day go out of business, with some companies meeting that fate sooner rather than later, as we have created an asset that will still be out there in someone’s hands regardless of how much interest in investing in it may dwindle.

There will likely be situations, like we’ve just seen, where even in the face of downward momentum, enough investors perceive value at a certain price level that it may rebound. It’s hard to imagine more downward pressure than ethereum’s recent drop, where its price was run up fantastically and a lot of people scurried to take profits after it started to sink, but it did manage to stabilize at fairly reasonable levels.

Whether ethereum continues to find support at around $300, or later establishes this at $200 or $100, this has still put in huge gains at these levels over where it has been not that long ago. It is entirely reasonable to expect that an asset like this will drop pretty dramatically when it spikes dramatically, and we see this with precious metals as well.

While there is quite a bit more uncertainty with ethereum than we would see with things like gold and silver when they correct like this, as we have a much better idea of what the floors may be with precious metals given their long history of being traded, ethereum and other cybercurrencies have shown considerable stability thus far and thoughts of them dropping off the table are at least at this point premature.

Ethereum and other cybercurrencies may be seen as a fad but their structure allows them to be very persistent in the market and regardless of how much of their runup has been due to investor hype, this should not affect their long-term durability.

Leveraging the Future of Ethereum

It is one thing to say that ethereum should be around for a very long time and perhaps another to decide how we’re going to approach its future. Ethereum very likely will become more useful over time as more and more companies take advantage of its smart contracts and its ability to exchange virtually anything of value within these exchanges.

Ethereum is a very exciting technology and it may indeed change the way a lot of data is stored, leveraging public ledgers to add more certainty to a lot of different types of agreements and transactions.

We need to understand though that this is separate from ethereum as an investment and the nature of it in this capacity depends in large part upon investor participation, otherwise the value of it would be very low compared to today’s still lofty valuation.

Given this, position management with ethereum both now and in the future will depend on ensuring that we are more in concert with current trends than just buying and holding ethereum in expectation of longer-term gains.

We can’t even say that ethereum’s long-term prospects are good enough that we may expect it to gain beyond the bottoms that we’ve recently put in, and it could very well be that in 10 years’ time ethereum may be worth considerably less.

Once we get enough history though, we may establish some ranges where ethereum may be traded in, much like we have with gold and silver, but what needs to drive our interest in ethereum as well as gold and silver is the current direction of these markets and look to be on the right side of them as much as possible.

With ethereum currently in a downtrend for instance, we really wouldn’t want to be initiating new positions in it and we probably should not be in it on the long side at all here, because that’s not where the direction is pointing right now. We also should not be long gold or silver either for similar reasons.

Ethereum and other cybercurrencies do represent a significant addition to the speculator’s tool box though, and one that is very accessible to individual investors, more so than traditional assets such as precious metals.

Thus, ethereum will both likely make a splash on the practical side over time with its exciting way of bringing people together to forge out agreements and other events that involve multiple users, as well as being a pretty exciting investment as well.