The Motley Fool

Ethereum Is About to Surge as Supply Is Cut!

Image source: Getty Images

Bitcoin has had an incredible run over the past year. However, the second-most popular cryptocurrency Ethereum has actually outperformed it. ETH is up 811% compared to BTC’s 560% return over the past 12 months. Now, a culmination of two factors could help Ethereum sustain its outperformance. 

Ethereum market potential

The collective value of all the Bitcoin in the world recently surpassed US$1 trillion (CA$1.27 trillion). Experts believe the market value could surge 10 times higher, as BTC siphons off market share from gold. 

Unlike BTC, Ethereum is not digital gold or a store of value. Instead, it’s a token used for decentralized applications. Think of it as the fuel for a global virtual computer. That means Ethereum is akin to digital oil, rather than digital gold. 

And the applications built on the Ethereum network have multiplied rapidly. Over the past few years, developers have replicated the traditional financial sector on this network. Users can now generate a fixed return on their savings, offer loans, and borrow money on the Ethereum blockchain. 

The most popular application on Ethereum is the Non-Fungible Token (NFT). Users have been using this application to buy and sell digital art. The National Basketball Association (NBA) recently used this technology to sell collectible videos, game highlights, and stats on its NBA Top Shot marketplace. 

 As the utility of the network grows, Ethereum should become more valuable. However, the creators of Ethereum are close to updating the network to limit supply and make each unit even more valuable this year. 

Supply shock

An upcoming update to the Ethereum network (called EIP 1559) will burn or destroy a set amount of ETH tokens. This should reduce the number of outstanding ETH over time, making each ETH more valuable as a consequence. 

Growing demand from expanding applications coupled with this update that eliminates supply could make Ethereum skyrocket in 2021.

How to buy Ethereum

Canadian investors can buy and hold Ethereum directly on certain platforms such as Wealthsimple. However, these direct holdings do not qualify for the Tax-Free Savings Account (TFSA). Canadian investors may also be uncomfortable with the risk of holding digital assets directly. 

Instead, you could bet on a proxy. Most crypto mining stocks, such as HIVE Blockchain, have Ethereum reserves on their balance sheet. There’s also a close-ended fund that tracks the price of ETH directly — The Ether Fund. Over the three months, these proxies have delivered 61% and 210%, respectively. 

Adding these to your TFSA could be a great way to add some hyper-growth potential with no tax consequences. 

Bottom line

There’s growing evidence that blockchain technology does have useful applications. Bitcoin is being used as digital gold. Meanwhile, Ethereum is being used as fuel for digital applications. While adoption grows, Ether developers are set to implement an upgrade that could cut supply. The price could skyrocket by the end of 2021. 

Consider adding a small portion of your portfolio to this arguably speculative asset to avoid missing out.  

Looking for another intense growth stock? Here's a pick.

Should you invest $1,000 in Hive Blockchain right now?

Before you consider Hive Blockchain, you may want to hear this.

Motley Fool Canadian Chief Investment Advisor, Iain Butler, and his Stock Advisor Canada team just revealed what they believe are the 10 best stocks for investors to buy right now... and Hive Blockchain wasn't one of them.

The online investing service they've run since 2013, Motley Fool Stock Advisor Canada, has beaten the stock market by over 3X. And right now, they think there are 10 stocks that are better buys.

Learn More Today!

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.