How to Trade Ethereum

In this guide:

  1. What is Ethereum?
  2. Reasons You Might Trade Ethereum
  3. Current Ethereum Price
  4. Ethereum Market Sentiment
  5. What Drives the Price of Ethereum?
  6. How High Could The Price of Ethereum Go?
  7. How to Buy Ethereum

What is Ethereum?

Ethereum is a computing platform that produced the cryptocurrency token ether. Ether began trading in July 2015 and is the second most valuable digital currency after Bitcoin. In 2016, Ethereum forked into two separate blockchains – Ethereum Classic (“ETC”) and Ethereum (“ETH”).  Both have active markets, but this article will focus on investing in the newer blockchain ETH.

Should I Trade Ethereum?

Trading Ethereum offers many advantages similar to other cryptocurrencies. Ethereum is a decentralized payment network. Therefore, its price can’t be manipulated by the actions of government authorities such as central banks. Fiat currencies such as the dollar or euro have no theoretical limits to their supply, whereas computing power limits the supply of Ethereum.

Ethereum also allows users to transact business with complete anonymity and without the need for banks or other third parties. These features make Ethereum more cost-effective than fiat currencies.

An Ethereum investment also offers two significant advantages over other cryptocurrencies such as Bitcoin. First of all, traders in ETH can create blocks more rapidly than in Bitcoin. Blocks are the transaction records for a cryptocurrency. This speed advantage makes Ethereum more practical as a medium for transacting business.

Secondly, the technology behind Ethereum allows other applications to run on its network. Developers are building a myriad of products on the network including apps that allow access to credit, verification of identity and virtual worlds among others. The robust nature of the platform may lead to more rapid adoption of Ethereum and higher prices for the ETH currency.

However, investing in ETH also carries significant risks. The lack of a liquid market and centralized trading platform means extreme price volatility. Also, security presents a big problem as the exchanges that handle transactions are vulnerable to hackers (more on this below).

What is the Current Price of Ethereum?

You can see the price of Ethereum and other leading cryptocurrencies below:

Ethereum Market Sentiment

We’ve gathered data from leading exchanges to determine the buy/sell sentiment for the Ethereum market. Which way do you think the price will move?

Buy/Sell Sentiments:

Source – CryptoCompare Public API. CryptoCompare gathers data from the following leading exchanges – BTC38, BTCC, BTCE, BTER, Bit2C, Bitfinex, Bitstamp, Bittrex, CCEDK, Cexio, Coinbase, Coinfloor, Coinse, Coinsetter, Cryptopia, Cryptsy, Gatecoin, Gemini, HitBTC, Huobi, itBit, Kraken, LakeBTC, LocalBitcoins, MonetaGo, OKCoin, Poloniex, Yacuna, Yunbi, Yobit, Korbit, BitBay, BTCMarkets, QuadrigaCX, CoinCheck, BitSquare, Vaultoro, MercadoBitcoin, Unocoin, Bitso, BTCXIndia, Paymium, TheRockTrading, bitFlyer, Quoine, Luno, EtherDelta, Liqui, bitFlyerFX, BitMarket, LiveCoin, Coinone, Tidex, Bleutrade and EthexIndia.

What Drives the Price of Ethereum?

There are two key drivers of the demand for Ethereum. First, ETH has benefitted from bullish market sentiment about cryptocurrencies in general. Investors see Ethereum and other cryptocurrencies as an alternative asset class to investments denominated in fiat currencies. Although there is a limited price history for ETH, data shows that it is negatively correlated with the dollar and positively correlated with gold. Ethereum benefits from trader concern about the dollar, euro, yen, etc. as reliable stores of value. By the same token, Ethereum has a high positive correlation with the price of Bitcoin since it began trading.

Secondly, the Ethereum price has benefitted from its robust technology platform. Whereas the market sees Bitcoin as simply a system for payments, it views Ethereum as having much greater potential. For example, Ethereum’s adoption by corporations for smart contracts has fueled speculation by traders that the cryptocurrency is better poised than Bitcoin for mainstream adoption in the near future. Since its launch, ETH has produced returns that have exceeded those of Bitcoin.

What is the Price Outlook for Ethereum?

Its limited trading history makes technical analysis of price charts for ETH impossible. An ETH chart shows a virtually parabolic rise since it began trading. Such a chart doesn’t lend itself to traditional technical analysis where high and low trading levels provide clues about future movements.

Similarly, there are few fundamental data points that analysts can use to value ETH. Although sites like Ethstats and Etherchain offer real-time data about ETH, they offer few clues about the future price outlook for ETH.

The best way to forecast the future price of Ethereum is to examine supply / demand fundamentals for the cryptocurrency. According to Investing Haven, there is a supply of 92 million ETH coins. This figure is expected to grow over the next one to two years and then flat line as the number of new coins mined equals the number of coins taken out of circulation.

Once supply stops growing, the demand side of the equation will drive future price moves for ETH. The key is the Ethereum platform and the many applications it supports.  Specifically, the platform’s ability to handle and execute smart contracts will create increasing demand for ETH in the financial services space. Barclays is using smart contracts, for example, to trade derivatives contracts. A group called the Enterprise Ethereum Alliance (“EEA”) facilitates the development of applications on the Ethereum platform by large corporations in finance and other industries.

According to Investing Haven, Ethereum’s usage in blockchain applications could grow conservatively between 20 to 30 times over the next five to seven years. The increasing value of the platform to corporations could spur investment demand. The creation of the Ethereum Investment Trust and the likelihood of an Ethereum ETF and Ethereum IRA will also serve to bolster investment demand. The upshot is that an Ethereum investment could easily increase several fold over the next two to three years as more traders learn how to buy Ethereum.

What Do Experts Say About the Price of Ethereum?

Experts are divided about the price of Ethereum. Blockchain trader William Mougayar believes Ethereum has enormous potential because its platform is designed for use by software engineers and developers. Mougayar sees the shrinking gap between the value of Bitcoin and Ethereum as a validation of ETH and a reason that ETH should trade higher.

Mike Cagney, CEO of lending startup SoFi sees “fascinating infrastructure applications” with Ethereum and believes that ETH has much greater upside potential than Bitcoin.

Other experts are less sanguine about the returns on an Ethereum investment. Jamie Dimon, chairman and CEO of JPMorgan Chase, argues that governments will shut down cryptocurrencies if they get too big. Charles Haytar, CEO of market analysis platform CryptoCompare, believes that a lack of rationality about value has created a bubble for cryptocurrencies in general.

However, notwithstanding its CEO’s pessimism, CryptoCompare released data that bodes well for the future price of ETH. Purchases of ETH with Bitcoin declined from 83% to 32% in the last year, while purchases of ETH with fiat currencies rose sharply. In other words, it isn’t just cryptocurrency enthusiasts who are making Ethereum investments; mainstream traders, as well, are increasingly seeking exposure to ETH.

How to Buy Ethereum

So you’ve decided that you want to invest in Ethereum. There’s just one problem, you’re not quite sure how to get Ethereum.

The best way to acquire ETH is by using a cryptocurrency exchange. You can use these exchanges to trade fiat currency for Ethereum. The issue is that going through an exchange carries a few risks. You don’t have any legal protection should anything go wrong and you need to be very careful of any potential scams. You won’t be able to rely on anyone but yourself so you’ll need to be careful to take the right steps to protect yourself.

There’s a couple of approaches that you can take to buy Ethereum and the one you choose will largely depend upon your priorities.

If you are happy to directly invest your fiat currency in order to buy Ethereum then we would recommend going through Coinbase. There are a lot of exchanges out there but Coinbase will suit the majority of traders. They have a lot of currency pairs available and you have the option to buy currencies using credit cards. Coinbase also has a competitive fee rate. Purchasing Ethereum will typically result in a 3.99% fee if using a credit/debit card and a 1.49% fee for most kinds of bank transfers.

Like many other exchanges Coinbase does require that you provide your ID and address. This helps to protect users and prevents the exchange being used for criminal activities. For traders who value their anonymity there is another option.

Rather than buying Ethereum directly you can first buy Bitcoin through an exchange that does not require ID vetting. One of the best options for this is LocalBitcoins which provides users with the opportunity to buy Bitcoin in almost any currency. Once you have obtained the Bitcoins you can then trade these for Ethereum at other anonymous exchanges.

Be aware when using LocalBitcoins that some unscrupulous users may attempt to scam new traders. Always read the reviews of who you are dealing with before making a trade and if you have any suspicions don’t make the trade.

No matter which exchange you use, never invest more than you can afford to lose

Any investment is a risk and ETH is a particularly volatile commodity. When you’re considering how to buy Ethereum you need to remember that even if you use a safe exchange like Coinbase you can still lose all of your investment. If the market turns against it you could lose some, or all, of your money.

Investing in Ethereum is the same as any other investment. Make sure that you always follow the golden rule, Only invest what you can afford to lose. If you stick to this and use a safe exchange then your Ethereum investment will be on the right track.