A deeper dive reveals why Ethereum remains an overlooked gem in the crypto market.
To say Ethereum (ETH -1.17%) is down would be exactly correct. However, when considering the gains made among its peers during 2023, its 90% increase makes it feel like Ethereum more or less watched from the sidelines while other cryptocurrencies had triple-digit percentage gains.
Given its position as the second-most-valuable cryptocurrency on the market, it seems unnatural for Ethereum not to have had a more considerable jump. But all this means is that Ethereum has some catching up to do in 2024. Here's why Ethereum remains an attractive buy.
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The smart contract pioneer
Ethereum's launch in 2015 altered the trajectory of crypto forever. Its novel smart contract functionality provided the foundation for developers to create innovative applications of blockchain technology that have now become common. Without Ethereum, things like decentralized finance (DeFi), non-fungible tokens (NFTs), stablecoins, and much more would not exist.
Although newer cryptocurrencies like Solana and Avalanche provide similar or even superior capabilities today, Ethereum remains the clear-cut leader of decentralized innovation. Several metrics demonstrate Ethereum's dominance over hopeful competitors, but two in particular highlight just how tight the original smart contract blockchain's grip on the market remains.
The undisputed champion of the decentralized economy
First is total value locked (TVL). Quantifying the total value of assets currently staked or locked in a particular blockchain, TVL is a metric used to compare the amount of liquidity within varying DeFi ecosystems. The thinking goes that the greater the TVL, the more robust and valuable a blockchain is. As a disclaimer, this statistic has some limitations, but it does a good enough job of leveling the playing field to make comparisons.
Today Ethereum's TVL is worth roughly $31 billion and accounts for 55% of the TVL across all blockchains with DeFi capabilities. Solana has just $1.3 billion in TVL, and Avalanche has $856 million.
The distance separating Ethereum from competitors undoubtedly results from its first-mover's advantage. As the first smart contract-capable blockchain, it was the only option for quite a while. Yet even as competing blockchains have joined the DeFi race and attracted significant hype, none has been able to challenge Ethereum where it matters most.
Follow the developers
Going beyond TVL, assessing the number of active developers provides valuable insights into a cryptocurrency's potential. Developers are key players, responsible for creating applications, fixing issues, and introducing new features -- all critical for the sustained success of a blockchain.
Yet again, Ethereum shines. As of the latest count in October 2023, Ethereum had twice as many active developers as Polkadot, and nearly three times more than Solana.
Ethereum's extensive developer community is arguably its most valuable asset, giving it a significant competitive advantage over other blockchains. With developers involved in day-to-day maintenance, further upgrades, and exploring new use cases, Ethereum is typically the top choice for new projects seeking a reliable blockchain.
Most importantly, a robust developer community not only ensures long-term viability, but also attracts more projects. Since the value of most cryptocurrencies is tied to their utility, a blockchain supporting numerous use cases often commands a higher price.
Ethereum's value proposition today
Considering its lackluster performance in 2023, Ethereum simply holds too many advantages compared to other blockchains not to be a leader in the crypto market this year. With an expansive and flourishing ecosystem of tokens, decentralized exchanges, NFTs, stablecoins, and much more, Ethereum provides investors with unparalleled exposure to the burgeoning landscape of decentralized finance.
As it currently stands, Ethereum remains almost 50% off its all-time high of nearly $4,900. Considering its position as a DeFi leader and the likelihood of a looming crypto bull market, Ethereum holds plenty of upside for the upcoming year. While the rest of the crypto market focuses on newer or more glamorous blockchains, don't forget about Ethereum. It still has plenty of room to run.
RJ Fulton has positions in Ethereum and Solana. The Motley Fool has positions in and recommends Avalanche, Ethereum, and Solana. The Motley Fool has a disclosure policy.
