As soon as investors dip their toes into bitcoin, they often ask this question: What other cryptocurrencies should I invest in?
Ethereum is the second largest blockchain network after Bitcoin, based on the market capitalization of its Ether (ETH) cryptocurrency. It is also usually the second largest investment that new cryptocurrency investors make, after buying bitcoins.
In this guide, you will learn what Ethereum is, why it is attracting investor interest, and what your investment options are if you want to invest in Ethereum.
What is Ethereum?
Ethereum is an open-source blockchain network that allows users to use smart contracts to create decentralized applications (DApps).
According to a 2020 report from venture capital firm Electric Capital, the average number of developers working on Ethereum per month was 2,300 in Q3 2020, compared to 400 for Bitcoin. Ethereum’s popularity can be attributed to its advantage as a pioneering smart contract blockchain and the growing DeFi and NFT markets.
Ether (ETH) is Ethereum’s own crypto currency and the second largest digital asset by market capitalization after Bitcoin (BTC). ETH is used to pay transaction fees, implement smart contracts and sign transactions.
Vitalik Buterin described Ethereum in a white paper in 2013, and the network was launched in July 2015. The founders set up the development of Ethereum through an ICO in 2014 that raised $16 million.
Why invest in Ethereum?
Ether’s significant price increase after its ICO in 2014 can be attributed to its success as the leading marketplace for blockchain-powered smart contracts.
Ethereum has the largest number of decentralized applications (DApps) and a huge developer community. It is also a blockchain for the emerging decentralized financial market (DeFi) and the growing non-distorted token market (NFT).
Launched at a price of $0.31 in an ICO in 2014, ETH reached an all-time high of over $2,231 in mid-April 2021, underscoring cryptocurrency investors’ confidence in Ethereum’s future despite the challenges of scaling the network.
The decision whether or not to invest in ETH is of course entirely up to you and your risk tolerance as an investor.
How to invest in Ethereum
There are several ways to include Ethereum in your investment portfolio; here are 5.
Buy ETH Token
Buying Ether tokens (ETH) is probably the easiest and most direct way to invest in Ethereum for both novice and experienced investors.
You can buy ETH on any reputable digital exchange that allows you to buy ETH with US dollars or bitcoins. Examples are the octopus and the abra.
Before you can buy ETH, you need an Ethereum wallet. The most popular ETH wallets are MetaMask, Exodus, Trust Wallet and Ledger Hardware Wallet. When you buy ETH on an exchange, the exchange creates a portfolio for you. Finally, you can buy ETH by using one of the available payment methods, which usually include debit and credit cards or bank transfers.
Buy a CFDon ETH
Most CFD brokers added support for cryptocurrencies during the last bull market for cryptocurrencies in 2017. Therefore, you can also add Ethereum to your portfolio by buying ETH CFDs, especially if you already have an account with an online broker like eToro, IG or AvaTrade.
The Contract for Difference (CFD) is a derivative financial instrument that allows you to speculate on the price of the underlying asset without actually owning it.
The main difference between buying ETH and buying a CFD on ETH is that when you buy a token, you actually own ETH. Conversely, if you hold a position in ETH CFDs, you have synthetic exposure to ETH price movements.
If you plan to use ETH tokens on theFi markets, for example, you will need to buy the actual crypto currency. However, if you are only interested in exposure to the movement of the ETH price, CFDs may be the way to go.
However, before you buy an ETH CFD, make sure you understand how CFDs work and the risks and costs associated with this financial product.
The main advantages of trading ETH CFDs – as opposed to trading cryptocurrencies directly – are the ability to take long and short positions, as well as the ability to use leverage.
Buy ETH Trust shares in grey
Another Ethereum investment option for US investors is the Grayscale ETH Trust. Grayscale Investments is a digital asset manager that allows investors to access digital assets by purchasing shares in a trust that invests in a specific digital asset. Investors who buy shares in the trust gain access to ETH price movements through a traditional, regulated investment vehicle.
You can purchase units of the ETH Trust through your broker, provided your broker has access to the over-the-counter market where units of the Trust are traded, which most brokers do.
Shares of the Grayscale ETH Trust can be held in certain IRA and 401k accounts, which is a plus for U.S. investors looking to save for retirement. Gray Scale charges an annual management and storage fee of 2.5%.
Buy EthereumTracking Certificates
If you prefer to invest in the stock market, you can also gain access to Ethereum by buying Ethereum tracking certificates. A tracker certificate is a regulated investment instrument that tracks the price of an underlying asset, such as a stock… For example, Bitcoin or Ether.
Digital asset tracking systems can be found on the SIX Swiss Exchange and the NASDAQ in Sweden.
To buy tracker certificates, you must have an account with an online broker that offers access to these products. Although some crypto traders trade in US dollars, few US brokers offer access to the European exchanges on which they trade.
Buy ETH Futures on the CME
Investors can also buy ETH futures on the CME, which were launched earlier this year.
A futures contract is an agreement to buy or sell an asset at a predetermined price and on a predetermined future date.
ETH futures offer another way to profit from the ETH price without owning the cryptocurrency. However, they are mainly used by active traders for short-term speculation or by large investors who want to hedge their portfolio of digital assets.
You can access ETH futures on the CME through your broker, but make sure you understand how futures work before adding ETH futures to your portfolio.
As the second largest crypto currency in terms of market capitalization, Ethereum may be a crypto currency worth exploring further and possibly adding to your crypto portfolio.
The information contained herein is for informational and educational purposes only and should not be construed as investment, financial, legal or other advice. Investing in cryptocurrencies and tokens is highly speculative and the market is largely unregulated. Anyone considering doing this should be prepared to lose their entire investment.
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