Once investors have dipped their toes into bitcoin, they often ask the question: “So what other cryptocurrency should I consider investing in?”
Ethereum is the second-largest blockchain network after Bitcoin, measured by the market capitalization of its cryptocurrency, ether (ETH). It is also typically the second investment that new crypto investors make after buying bitcoin.
In this guide, you will learn what Ethereum is, why it is attracting investors’ interest, and what investment options you have if you would like to invest in Ethereum.
What is Ethereum?
Ethereum is an open-source blockchain network that allows users to deploy smart contracts to build decentralized applications (DApps).
According to a 2020 report by venture firm Electric Capital, the average number of developers working on Ethereum monthly was 2,300 in Q3/2020 compared to 400 on Bitcoin. Ethereum’s popularity can be attributed to its first-mover advantage as a smart contract-enabled blockchain and the booming DeFi and NFT markets.
Ether (ETH) is the native cryptocurrency of Ethereum and the second-largest digital asset by market capitalization after bitcoin (BTC). ETH is used to pay transaction fees, deploy smart contracts, and sign transactions.
Vitalik Buterin described Ethereum in a white paper in 2013, and the network went live in July 2015. The founders founded the development for Ethereum through an ICO in 2014 that raised $16 million.
Why Invest in Ethereum?
The significant rise in ether’s price following its ICO in 2014 can be attributed to its success as the leading smart contract-enabled blockchain in the market.
Ethereum boasts the largest number of decentralized applications (DApps) and a massive developer community. What’s more, it is the go-to blockchain for the burgeoning decentralized finance (DeFi) market and the booming non-fungible token (NFTs) market.
Launching at an ICO price of $0.31 back in 2014, ETH has hit an all-time high of over $2,231 in mid-April 2021, highlighting crypto investor’s belief in the future of Ethereum, despite the network’s scaling challenges.
Whether you should or shouldn’t 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 options to add Ethereum exposure to your investment portfolio; here are 5 of them.
Buy ETH Tokens
Buying ether (ETH) tokens is arguably the most straightforward and direct way to invest in Ethereum for beginners and seasoned investors.
Before you can buy ETH, you will need to get an Ethereum wallet. Popular ETH wallets include MetaMask, Exodus, Trust Wallet, and the hardware wallet Ledger. If you are purchasing ETH on an exchange, they create the wallet for you. Finally, you can buy ETH using any of the available payment methods, which typically includes debit and credit cards or a bank transfer.
Buy ETH CFDs
Most CFD brokers have added support for cryptocurrencies during the last crypto bull market in 2017. As a result, you could also add Ethereum exposure to your portfolio by buying ETH CFDs, especially if you already have an account with an online brokerage, such as eToro, IG, or AvaTrade.
A contract for difference (CFD) is a financial derivative that allows you to speculate on the price development of an underlying asset without actually holding it.
The main difference between buying ETH and buying CFDs on ETH is that when you buy the token, you actually own ETH. Conversely, when you hold a position in ETH CFDs, you have synthetic exposure to the price movements of ETH.
If you plan on using your ETH tokens in the DeFi markets, for example, you will need to buy the actual cryptocurrency. However, if you only care about adding exposure to ETH’s price movements, CFDs can do the trick.
Before buying ETH CFDs, however, ensure that you understand how CFDs work and the risks and fees involved in this financial product.
The main advantages of trading ETH CFDs – as opposed to the cryptocurrency directly – include the ability to go long and short and apply leverage.
Buy Shares in the Grayscale ETH Trust
Another Ethereum investment option for US investors is the Grayscale ETH Trust. Grayscale Investments is a digital asset manager that offers investors the ability to gain exposure to digital assets by buying shares in a Trust that invests in a specific digital asset. Investors that buy shares in the Trust get exposure to the price movement of ETH through a traditional, regulated investment vehicle.
You can buy shares in the ETH Trust through your broker, provided they have access to the OTC market, where the Trust’s shares trade, which most brokers do.
Shares in the Grayscale ETH trust can be held in certain IRA and 401k accounts, which is a plus for US investors that want to save for retirement. Grayscale charges a 2.5 percent annual administration and safekeeping fee.
Buy Ethereum Tracker Certificates
If you prefer exchange-traded investment, you could also gain exposure to Ethereum by purchasing Ethereum tracker certificates. A tracker certificate is a regulated investment vehicle that tracks the price of an underlying asset, such as bitcoin or ether.
Digital asset trackers can be found on the Swiss securities exchange SIX and on NASDAQ in Sweden.
To buy tracker certificates, you will need an account with an online broker that provides access to these products. While some crypto trackers trade in US dollars, not many US brokerages provide access to the European exchanges where they trade.
Buy ETH Futures on the CME
Investors can also buy ETH futures on the CME, which launched early this year.
A futures contract is an agreement to purchase or sell an asset at a predetermined price and date in the future.
ETH futures provide another way to gain exchange-traded exposure to the price of ETH without owning the cryptocurrency. However, they are primarily used by active traders for short-term speculation or large investors looking to hedge their digital asset portfolios.
You can access ETH Futures on the CME through your broker but make sure you understand how futures work before adding ETH futures into your portfolio.
The Bottom Line
As the second-largest cryptocurrency by market capitalization, Ethereum’s ether may be a cryptocurrency worth doing some additional research on and potentially adding to your crypto portfolio.
This article’s information 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 it should be prepared to lose their entire investment.