Big Money Likes Ethereum, But That May Not Be a Good Sign

Ethereum (CCC:ETH-USD) has suffered two sharp pullbacks in the last six months, but let’s face it, if you got in on ETH early this year, you probably don’t care.

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Either you’ve either already made your money or you’re holding on with diamond hands as you wait for it to reclaim record highsStill, if I were an investor looking to add to my position in ETH, a recent headline would give me pause.

According to JPMorgan Chase (NYSE:JPM), many institutional investors are fleeing Bitcoin (CCC:BTC-USD) and are flocking to Ethereum.

The way the article describes it, the “big money” is looking to get in on Ethernet before it becomes a significant part of the financial markets. 

With Ethereum having launched the first phase of Ethereum 2.0, there’s reason to believe that Ethereum may make this vision a reality sooner rather than later.

It’s the very fact that institutional investors are getting involved that would give me pause if I were an early adopter. I’ll point to social media for an example. 

Although Facebook (NASDAQ:FB) remains a popular platform, it’s not news to me that it’s not necessarily the go-to social media app among the younger generation. In 2018, eMarketer reported that 700,000 teenagers and young adults in the United Kingdom would leave the social media site. 

My sample size is my own kids. Only one is on Facebook and he had to do that for a class requirement (he says he’ll drop the app as soon as the class ends). One reason they’re not on is because someone like me is. It can’t be cool if Dad uses it. They prefer Instagram. 

I know that Instagram is part of Facebook and many of these Facebook defectors use Instagram, but the point of my reference is not to tell you that Facebook is going out of business. It’s just to point out that tastes change.

Younger investors are fueling the growth of cryptocurrency. Now don’t get mad at me if you’re above the age of 30 and are heavy into cryptocurrency. But just as ether (I.e. ETH) is the gas for Ethereum; younger investors have been the gas for ETH.  

And if institutional investors begin to flood into Ethereum, how long will it take before younger investors decide to walk away? It’s not as if they don’t have other options. 

The Future of Ethereum Is Measured in Years 

If you’ve read my takes on cryptocurrencies, you know I’m not a big fan. Rather than whet my appetite, the last 18 months have only made me more hesitant on cryptocurrencies. I know that I’ve missed out on gains.

Just in the past 18 months, the price of Ethereum has gone “to the moon” as have many other cryptocurrencies.  The question is why and there are many reasons for that.  

As I’ve mentioned before, I can appreciate the underlying use cases for blockchain technology that are used to justify the gains in Ethereum as well as any number of altcoins.

In fact, that “any number” is one of my largest concerns. There really isn’t any barrier to entry. If there was, we wouldn’t have nearly 10,000 altcoins in circulation. But I also understand that to solve the “trilemma” of cryptocurrency you must deal with the question of decentralization. That means in part, there’s a need for proprietary tokens.  

With that said, 10,000 altcoins don’t exactly make scarcity a problem. Having said that, for now, ETH remains one of the cool kids on the block. While I’m not sure it will remain that way, it’s likely one of the most secure of the cryptocurrencies you can own.  

On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.  

Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for InvestorPlace since 2019.