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Even with a significant run-up in 2023, the cryptocurrency market remains well off its peak valuation of $3 trillion in 2021. Investors just aren't as excited about the industry as they were just a couple of years ago, as higher interest rates and a softer macroeconomic backdrop make risky assets less attractive.

Recent regulatory actions by the Securities and Exchange Commission also cast a shadow over the industry's future.

Some of the most popular cryptocurrencies are also selling at steep discounts. Ethereum is 62%below its all-time high of about $4,900 in November 2021. Should investors buy the dip?

For those looking to put some money to work in this high-risk, high-reward asset, now might be a good time to do so. Let's take a closer look.

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Unlike Bitcoin, which lacks features in network functionality, Ethereum is built with smart contracts. These software programs run on its blockchain automatically when specific conditions are met.

This technological innovation allows its blockchain to be home to a bunch of decentralized applications (dApps), eliminating the need for intermediaries or sponsors. Examples of categories of dApps include gaming, social media, and gambling.

Decentralized finance (DeFi) protocols, like peer-to-peer lending and savings networks or decentralized exchanges, are some of the more popular kinds of dApps to keep an eye on.

The traditional financial-services industry is characterized by having lots of expensive intermediaries that extract fees. Although full of its own set of issues, mainly the lack of consumer protections, DeFi is a promising area to unleash cryptocurrency's potential because it could provide customers with better pricing and an improved user experience.

Ethereum is positioned well to continue being the leading blockchain platform when it comes to dApps. According to a report from Electric Capital, a venture investment firm, half of all DeFi developers were working just on Ethereum.

And Ethereum had the largest active developer community compared to any other cryptocurrency, almost triple the second best, Polkadot. This means there are lots of smart and dedicated computer scientists working to continuously improve Ethereum, which should help keep it in the lead.

The most recent upgrade, known as The Merge, transitioned Ethereum to a proof-of-stake consensus model. It's supposed to be more energy efficient, while setting the network up for greater scalability to handle more transactions, at lower costs, in the future.

There are many more upgrades planned over the next few years that should keep Ethereum at the cutting edge in the blockchain industry.

When investing in stocks, there is definitely a lot of uncertainty. That's because a company's future depends on a lot of variables that are hard to predict, like the state of the economy, the competitive landscape, management's decisions, and changes in consumer behavior.

This uncertainty is amplified when looking at cryptocurrencies. The technology is still so early in its adoption curve that it's really hard to tell what things will look like in five to 10 years. This creates a wide range of outcomes.

Moreover, the risks with cryptocurrencies include other factors like the unclear and developing regulatory framework, network and security threats, and whether this innovative technology is even needed by anyone. This means that investors should practice a lot of patience and adopt a really long time horizon to let things play out.

And when buying any cryptocurrency to add to your portfolio, including Ethereum, it's important to be ready for lots of volatility. Buying the dip on this digital asset might look like a good idea today. But it's not going to be a straight line to huge investment gains. It's best to be mentally prepared for this.

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Ethereum: Buy the Dip? - The Motley Fool