If you're thinking about investing in Ethereum (CRYPTO: ETH) , you're probably a bit confused right now. Despite all the pro-crypto sentiment surrounding the Trump administration, Ethereum is down 27% year to date (as of Feb. 11). And market sentiment has clearly turned against Ethereum, which faces serious competition from more nimble rivals.
But if you take a long-term approach, things don't seem nearly as dire. Wall Street investment firm VanEck, for example, still thinks that Ethereum could soar in price to $7,334 by the year 2030. Based on Ethereum's current price of $2,570, that would represent a gain of more than 185%. So what will it take for Ethereum to post those gains?
The case for Ethereum hitting $7,000
Ethereum was the original smart contract blockchain network, and that's precisely why it has had such a fantastic 10-year run. It had first-mover advantage back in 2015 and quickly built up a robust blockchain ecosystem that now spans the blockchain world.
In coming up with its future price target, VanEck took a closer look at activity within this ecosystem. It examined where value was being created and where cash flows were being created. And it made some assumptions about Ethereum's future market share.
While Ethereum is certainly not as dominant as it once was, it still ranks as the clear leader in just about every niche of the blockchain world. In the world of decentralized finance (DeFi), for example, Ethereum still accounts for an astounding 53% of total value locked, or committed to smart contract services. The next closest competitor, Solana , has just a 9% market share.
This helps to explain why the Trump administration has made no secret of its support of Ethereum. In the days before the inauguration, a Trump-affiliated DeFi company invested $47 million in Ethereum. All signals suggest that the Trump White House is counting on Ethereum to push forward some of its big plans for the DeFi industry.
Add the fact that spot Ethereum exchange-traded funds (ETFs) were approved by regulators last year, and it's easy to be bullish on Ethereum's prospects. Investors now have a quick, easy, and highly regulated way to invest in Ethereum, and that will help Ethereum break into the mainstream.
While these spot Ethereum ETFs admittedly have not had the same price impact as the new spot Bitcoin ETFs, they continue to attract new money from investors. Currently, these spot Ethereum ETFs have more than $8 billion in assets under management, including $120 million in a spot Ethereum ETF managed by VanEck.
What could possibly go wrong?
In many ways, Ethereum has become a victim of its own success. Yes, it has a very vibrant and diverse blockchain ecosystem. But as Ethereum has grown by leaps and bounds during the past decade, things have gotten a bit unruly. Managing all that growth is difficult. Often, there is simply too much network congestion, and network fees are still too high for many users.
Ethereum turned to Layer-2 scaling partners for help. There are now dozens of these Layer-2 partners, all working to speed things up and keep fees as low as possible. They have the full support of Ethereum co-founder Vitalik Buterin, who recently vowed to keep them a core part of Ethereum's long-term strategy.
But here's the thing: too much value is starting to flow away from Ethereum to these Layer 2 partners, and that's a concern for investors. When VanEck originally came up with its valuation model for Ethereum, it assumed that 90% of the value would stay with Ethereum and 10% of the value would flow to the Layer 2 partners. That's why VanEck originally came up with a $22,000 price forecast for Ethereum.
Long-term outlook for Ethereum
But a lot has changed in recent months, and VanEck now thinks that 90% of the value is flowing to the Layer 2 partners and only 10% to Ethereum. A major tech upgrade last year is now being blamed for tilting the playing field in favor of the Layer 2 blockchains. This led to VanEck scaling back its $22,000 price forecast to $7,334.
That's both good news and bad news. It's bad news because it suggests that Ethereum may have lost control of its Layer 2 partners. It's good news because it suggests that the upside potential for Ethereum might be significantly higher than $7,334. As more money flows back to Ethereum, the long-term price outlook should improve as well.
Ethereum has a world-class developer network, a strong track record of delivering for investors, and a market-leading position in every important blockchain niche. If you're confident that Ethereum can sort out the current situation with its partners, you should be bullish on its prospects over the long haul.
Before you buy stock in Ethereum, consider this:
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