Ethereum may be down since the merger, but this could be a unique buying opportunity

What happened to Ethereum’s big post-merger rally? The world’s second-largest crypto-currency has lost 25% over the past 30 days. Given the general malaise affecting the crypto and stock markets, perhaps this pullback shouldn’t be that worrisome, but investors expected so much more from Ethereum after it pulled off the biggest feat in crypto history.

The good news, however, is that Ethereum is probably undervalued right now at its current price of $1,309. Ethereum is down more than 60% on the year and nearly 75% from its all-time high of $4,891.70. That said, there are a number of different reasons to consider buying Ethereum on the downside.

Ethereum’s performance improvement isn’t over

A common misconception about Ethereum is that the merger is a one-time event. This is not quite the case. As Ethereum co-founder Vitalik Buterin pointed out in mid-July, even after the merger, Ethereum’s new performance improvements will continue for a longer period of time. Currently, the upgrade is only 55 percent complete, according to Buterin. So if you’ve been disappointed by slower-than-expected transaction speeds or higher-than-expected transaction fees following the merger, relax.

Also, focusing solely on what’s happening with Ethereum ignores the fact that there’s a huge amount of activity with the layer 2 blockchains built on top of Ethereum. These layer 2 blockchains help the Ethereum ecosystem run faster and more efficiently.

The Layer 2 blockchain getting the most attention is Polygon, which has proven to be an exciting play on the future of non-fungible tokens (NFT) and Web3. But there are many other Layer 2 solutions, and Buterin hinted that new Layer 3 solutions may be in the works. If you’re considering the overall health of the Ethereum ecosystem, you need to consider these Layer 2 scaling solutions.

Investors focus too much on exogenous factors

In the best of all possible worlds, investors would focus solely on factors controlled by Ethereum. For example, they would focus on Ethereum’s dominant market share position in almost every sector of the blockchain and crypto world, ranging from NFTs to metaverse games. They would check metrics like total value locked (TVL), which is a measure of the amount of activity that occurs on a blockchain, and realize that Ethereum is by far the dominant blockchain in the world.

Unfortunately, investors choose to focus on exogenous factors. These are factors outside of Ethereum’s control and include things like Federal Reserve interest rate hikes and macroeconomic indicators such as the latest employment numbers. While some technical analysts are pointing out that all signs are there for Ethereum to reach the $1,500 level soon, all of these exogenous factors seem to be holding back Ethereum’s price.

Big ideas coming for 2023

Finally, Ethereum has long been a leader in innovation within the blockchain and crypto-currency market. Ethereum pioneered the idea of smart contracts, laid the groundwork for the decentralized finance industry (DeFi), developed the concept of NFTs, and realized the merger. Buterin has hinted at more innovations to come in the next 12 months. In a recent interview, he suggested that Ethereum could get more involved in “sharding,” “decentralized autonomous organizations” and “blockchain-based social media.” These concepts may seem obscure, but just remember that today’s NFT began its life as an ERC-721 token.

The innovation coming in 2023 is exciting if you are an Ethereum investor. It means that Ethereum won’t be resting on its laurels anytime soon. Twelve months from now, you may look at the current price of Ethereum ($1,309) and wonder why you didn’t accumulate Ethereum at such a low price.