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As equity markets benefit from a bounce-back year in 2023, so too has the crypto market.

Ethereum (ETH -0.29%) has climbed almost 30% this year, after it dropped 68% in 2022. But with it still being down significantly from its peak, some enthusiasts are hoping for huge returns in the years ahead.

As of this writing, Ethereum's price is sitting at about $1,500. For it to reach the $5,000 mark, that would translate to a gain of about 230%. Is this even a possible scenario? Let's take a closer look at this top digital asset.

Ethereum's all-time high price was about $4,892, which was set in November 2021. At that point, the token's price skyrocketed 153,000% from its initial launch date in mid-2015. Some lucky early adopters got rich.

But it's worth pointing out that this huge price run-up happened during a major bull market in both the equity markets and the cryptocurrency industry. Monetary policy was still loose after the depths of the coronavirus pandemic.

Since then, it's been a difficult ride for investors. Ethereum is currently 68% below its peak price. The so-called "crypto winter" was in full effect after a string of companies in the industry failing. Rapidly rising interest rates have also pressured riskier assets.

While impossible to predict, investors can't ignore macroeconomic factors. They can both positively and negatively influence Ethereum's price action.

Without a doubt, Ethereum has huge potential, according to the most supportive bulls.

Thanks to the added functionality and programmability of smart contracts, Ethereum is trying to become the world's decentralized computing platform. This blockchain innovation allows for two parties to transact for different use cases without the need for an intermediary. If it gains broader adoption, industries known for having expensive intermediaries are prone to disruption.

So far, the use cases have included various decentralized applications like financial protocols and non-fungible tokens (NFTs). While activity here has cooled off, developers continue working on trying to make the network better. According to a report by venture firm Electric Capital, Ethereum has 1,901 active developers working on it, significantly more than any other cryptocurrency. This bodes well for its ability to introduce advancements.

Speaking more to the development aspect, Ethereum's Merge upgrade is what many consider to be a positive step, particularly as it relates to scalability. Ethereum can only process 11 transactions per second, and when demand is high, transaction fees can soar.

The Merge transitioned Ethereum to a proof-of-stake (PoS) system, which can lower energy expenditures and set it up for further scaling enhancements. Future upgrades could add more capabilities to Ethereum. And in turn, this could drive usage and demand for the token, causing its price to rise.

As is the case with any unproven asset or new technology, there is a ton of uncertainty around the ultimate outcome.

With any cryptocurrency, there's always inherent technical risk. What happens if there's a bug in the software code that exposes private keys? Then everyone's crypto holdings can be stolen.

In Ethereum's case, its complex development roadmap introduces the possibility of errors to being made. This means its technical risks are even higher compared to a simpler and more straightforward crypto like Bitcoin.

One of the biggest bear arguments for Ethereum is that it's becoming more centralized, which goes against the entire premise of cryptocurrencies as tools for decentralization and giving power back to the users. The PoS consensus mechanism leads to larger pools of token holders controlling the processing of transactions.

Moreover, a single person, co-founder Vitalik Buterin, has major influence over the direction of Ethereum. He can make decisions to his benefit at the expense of the average Ethereum user. And this can be a detriment to the integrity of the network.

Ethereum has promise, but the uncertainty remains sky-high. So I think investors hoping for the token to reach $5,000 should temper expectations. Unless wild enthusiasm takes over the crypto market again, that's a very lofty price target to set your eyes on

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Can Ethereum Reach $5,000? - The Motley Fool