Up 70% for the Year and On Track to Hit a New All-Time High, Is Ethereum a Buy?

Through the first five months of 2024, Ethereum (CRYPTO:ETH) has been one of the top-performing major cryptocurrencies. It is now up 70% year to date, which is even better than Bitcoin (CRYPTO:BTC), which is up 62%. At a price of nearly $4,000, Ethereum is within striking distance of the all-time high of $4,891 that it hit during the previous crypto rally.

There's even more good news. Investors are excited about a new catalyst that they think could send the crypto skyrocketing. But are they overstating the bullish case for Ethereum?

Spot Ethereum exchange-traded funds (ETFs) are coming

The new catalyst, of course, is the Securities and Exchange Commission's (SEC) recent change of stance on spot Ethereum ETFs. On May 23, the SEC reversed its previous position and ruled that such ETFs would be allowed to trade on traditional exchanges in the future. So we know they are coming. But, as of yet, no spot Ethereum ETF applications have been officially approved by the SEC.

However, the crypto market has turned bullish, working on the assumption that official approvals and the funds' market debuts will come soon. That helps to explain why Ethereum is up 20% in just the past 30 days. It's a classic case of the market pricing in good news ahead of time.

But that's also what has me concerned. The crypto already had a bullish surge in January after the first spot Bitcoin ETFs were approved. That run-up was primarily based on speculation that spot Ethereum ETFs would be forthcoming. Now we're having another bullish surge, based on even more speculation.

To me, this is setting up to be a perfect example of "buy the rumor, sell the news." After spot Ethereum ETFs are officially approved and trading, the crypto might not get the huge price spike that many investors are expecting. In fact, Ethereum might decline as investors "sell the news."

Moreover, just about everyone agrees that Ethereum is not going to see anything close to the influx of investor money that Bitcoin saw as a result of its ETFs. At best, Ethereum might see one-half of Bitcoin's influx. So be skeptical of anyone telling you, "Hey, Bitcoin went up 60% after approval of the new spot Bitcoin ETFs, so Ethereum is going to go up 60% as well."

Reasons to be concerned about Ethereum

Another point of concern is that the current method used to scale Ethereum for its next stage of growth may not be working out as well as some had hoped. The core Ethereum blockchain now relies on Layer-2 scaling solutions such as Optimism (CRYPTO:OP), Polygon (CRYPTO:MATIC), and Arbitrum (CRYPTO:ARB) to help it run better, cheaper, and faster.

But these Layer-2 blockchains are down big for the year. Optimism is down 36%, Polygon is down 24%, and Arbitrum is down 22%. That's strange, right? How can Ethereum be up by 70% for the year while the Layer-2 blockchains that help it run more efficiently are down by more than 20%? At the very least, it's an interesting data point to keep in mind.

Image source: Getty Images.

Finally, there's the pesky little matter of competition. At one time, Ethereum was the clear market leader in its part of the crypto universe and had an enormous first-mover advantage. It was the first smart-contract blockchain platform and was a pioneer in everything from non-fungible tokens (NFTs) to decentralized finance (DeFi).

Now, it has a growing number of credible rivals, led by the likes of Solana (CRYPTO:SOL) and Avalanche (CRYPTO:AVAX). Over time, Ethereum is likely to lose market share, even in areas where it currently appears to be dominant.

How much higher can Ethereum go?

The big catalyst right now, obviously, is the looming arrival of the new spot Ethereum ETFs. Most likely, they will debut before the end of the summer, and the growing consensus is that this could lead to Ethereum hitting a new all-time high in 2024.

From there, however, the outlook gets hazier. If you are convinced that Ethereum's fundamentals are nothing to worry about and that it can maintain its market-leading position despite a host of new arrivals, then you might want to consider buying some.

But I'm taking a wait-and-see approach. From my perspective, the ETF investment thesis is getting overhyped, and there are plenty of up-and-coming rivals to Ethereum that might have significantly more upside potential.

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Dominic Basulto has positions in Bitcoin, Ethereum, Polygon, and Solana. The Motley Fool has positions in and recommends Avalanche, Bitcoin, Ethereum, Polygon, and Solana. The Motley Fool has a disclosure policy.