The world’s second-largest cryptocurrency still has short-term catalysts.

Many cryptocurrencies have retreated from their all-time highs a few years ago as rising interest rates have pushed investors into more conservative investments. However, three tailwinds have buoyed the broader market this year: expectations of lower rates, the approvals of the first Bitcoin (BTC 3.45%) spot exchange-traded funds (ETFs) in January and the Bitcoin halving in April.

But now that Bitcoin has completed its long-awaited halving, which reduces the rewards for mining Bitcoin every four years, there will likely be fewer short-term catalysts for the world’s leading cryptocurrency. So it’s time to turn our attention to Ethereum (ETH 2.15%), the world’s second-largest cryptocurrency, for bigger gains this year?

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The Differences Between Ethereum and Bitcoin

Ether is the native token of the Ethereum blockchain, which launched in 2015. Ethereum initially used the same energy-intensive proof of work (PoW) mining method like Bitcoin, but has transitioned to the more energy-efficient proof of participation (PoS) in a process called The Merge in 2022. This transition reduced Ethereum’s mining power consumption by 99.95% and made it deflationary — meaning more coins were mined being burnedor permanently removed from circulation than created. PoS blockchains also allow investors to to betor lock your tokens for fixed periods to earn interest-like rewards.

The Ethereum blockchain was also developed to support smart contractswhich can be used to create decentralized applications (Digital applications), smaller tokens, and other crypto assets. The Bitcoin blockchain can only be used to mine more coins. This is why Ethereum is often valued for its expanding developer ecosystem, while Bitcoin is often compared to gold or silver.

This fundamental difference led the US Securities and Exchange Commission (SEC) to say that Bitcoin was the only cryptocurrency that could be classified as a commodity. This classification supported its approvals of the first spot Bitcoin ETFs.

However, the SEC was reluctant to call Ethereum and other PoS coins commodities, saying that the staking process made them similar to securities. However, the SEC still paved the way for the first Ethereum spot price ETF applications earlier this year.

The Tailwinds and Headwinds for Ethereum

Ethereum’s biggest near-term catalyst will be the potential approvals of its first spot ETFs. The SEC has reportedly already granted preliminary approvals to at least three of the eight planned spot-price ETFs, according to Reuters, and the latest speculation suggests that most of these funds could begin trading as early as July 23.

Ethereum’s price has already surged by about 50% this year, but the first spot ETFs could push its price even higher. For reference, Bitcoin’s price has surged by more than 40% since the approvals of its first 11 ETFs on Jan. 10.

Another big catalyst is Ethereum’s recent Dencun upgrade, which increases its speed and reduces gas rates — essentially network user fees — for its Layer-2 blockchain. Stabilizing and falling interest rates could also drive investors back into Ethereum and other cryptocurrencies.

However, Ethereum still faces unpredictable headwinds. The Dencun upgrade has made Ethereum inflationary again, and its supply will continue to increase unless more tokens are burned. It also still processes transactions at a slower rate than newer PoS blockchains, such as Solana (SUN 7.25%) and Cardano (ADA 1.37%) — and these limitations may restrict the expansion of its ecosystem.

Ethereum’s planned spot ETFs will also not feature any staking mechanisms like their underlying tokens, so it may not be an attractive alternative to directly owning the cryptocurrency. Finally, market expectations for lower fees and ETF approvals may have already been factored into its current price.

So, is Ethereum a no-brainer buy now?

Ethereum is trading at around $3,400 at the time of writing, but some bullish investors expect it to generate big gains over the next few years. VanEck’s Matthew Sigel and Patrick Bush expect its price to more than triple to $11,800 by 2030, while Ark Invest’s Cathie Wood says it could be worth it a whopping $166,000 until 2032.

We should take these optimistic estimates with a grain of salt, but I believe that Ethereum spot price ETF approvals and lower interest rates must limit its downside potential this year. Ethereum’s next planned network upgrade, Pectra, is expected to further increase its speed and reduce its gas fees to keep up with Solana and Cardano. Therefore, I believe Ethereum is still a good cryptocurrency to accumulate right now — but investors shouldn’t necessarily expect it to take off in the coming months.

Leo Sun has no position in any of the stocks mentioned. The Motley Fool is positioned in and recommends Bitcoin, Cardano, Ethereum, and Solana. The Motley Fool has a disclosure policy.

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