Investing Idea: Ethereum

Ethereum’s (ETH/USD) price movement in the first few months of 2019 may not be as spectacular as Bitcoin’s but there’s a lot of action behind the curtains. According to a Forbes report on the top 50 billion-dollar companies exploring the blockchain, almost half of the companies listed are working with Ethereum for enterprise use cases. Some of the big names included are Google, Amazon, and Microsoft.

This is all possible because the Enterprise Ethereum Alliance (EEA) is building bridges and connecting Fortune 500 companies with Ethereum experts. The EEA is a standards organization whose mission is to accelerate the adoption of Ethereum blockchain technology and empower all types of businesses. In other words, the EEA is bringing experts and top firms together to help this altcoin and netword achieve its fullest potential.

The collaboration is ushering a wave of developments that can benefit the Ethereum public blockchain and accelerate the adoption of the technology. These reasons are why Ethereum is a solid investment pick.

Ethereum Value Metrics

  • Current Price: $184.42
  • All-Time High: $1,432.88
  • All-Time Low: $0.420897
  • YTD Performance: 38%
  • Market Cap: $19.56 billion
  • Market Cap Ranking: 2nd
  • ROI Since Launch: 6,413.02%
  • Primary Markets: Bitfinex, Kraken, Coinbase, Binance
Ethereum Chart
Ethereum Chart

Investment Case

The EEA puts Ethereum way ahead of other cryptocurrencies, including Litecoin (LTC/USD) and Bitcoin (BTC/USD) in terms of mass adoption. That’s because the EEA is made up of members from various sectors and industries across the globe including:

  • Banking
  • Technology
  • Government
  • Healthcare
  • Energy
  • Pharmaceuticals
  • Marketing
  • Insurance

The EEA is over 385 members strong. Some reputable members include Advanced Micro Devices (AMD), Mitsubishi UFJ, Cisco Systems, Deloitte, Intel, Samsung, and Microsoft among others. These companies are contributing manpower and know-how to address the real-world issues of deploying Ethereum at an enterprise level. Some of the issues that EEA is tackling at the moment are:

  • Faster transactions
  • Higher transactions per second
  • Greater security
  • Data privacy

Now it is important to note that almost all of the member companies are working on a private chain built on top of the Ethereum public blockchain. This means that these businesses will not be using Ether or the public network to power transactions. Nevertheless, critical improvements made by the EEA on the key areas mentioned are very likely to be integrated into the public blockchain.

This puts Ethereum one step closer to mass adoption.

Analyst’s Take and Tokenization of Assets

If you’re a long-term investor, this is the investment angle that you should be eyeing.

The EEA is forming a “token task force” this year with the goal of providing specifications for tokens that are deployable on Ethereum and Ethereum-based private blockchains. Most of these tokens will support ERC-20. That is where it gets exciting for investors.

ERC-20 tokens don’t have their own blockchain so they rely on Ethereum’s. This means that they are stored in an Ethereum wallet and they require gas (Ether) to power transactions. In the image below, you will see that ERC-20 tokens were transferred. While the tokens had no Ether value, the transfer came with a small transaction fee.

Use of Ether when transferring ERC-20 tokens
Use of Ether when transferring ERC-20 tokens | Source: Exodus

Again, private blockchains won’t need Ether to power transactions but with the developments spearheaded by the EEA, the general public can leverage tokens to buy and sell assets.

For instance, Iveniam Capital Partners (ICP) plans to tokenize real-estate and debt assets worth $260 million on the Ethereum blockchain. The company looks to auction off shares of the assets which will be represented by ERC-20 tokens. While buyers can purchase shares using any cryptocurrency in the top 50, they will still receive ERC-20 tokens. In other words, Ether will still be used to send the tokens to the highest bidders.

Bottom Line

This is only one example of how developments spearheaded by the EEA can eventually benefit the Ethereum public blockchain. As a long-term investor, the ideal situation is to see fewer people buying Ethereum for speculative purposes. Instead, people and companies should purchase the coin for purposes that have a direct impact on their daily activities just like the ones mentioned above. This is our investment idea for Ethereum.

 

Disclaimer: The author owns Ethereum. He holds investment positions in the coin but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.