Ethereum Dramatically Outperformed the S&P 500 in Q3. Is It Finally Time to Load Up on Ethereum?

One great quarter doesn't justify going overboard on Ethereum (CRYPTO: ETH) purchases, though owning some is a great idea, and adding a little right now still makes a lot of sense given what could be on the way. The coin surged by 66% in the third quarter, marking its best quarter since its wild run in 2021, while the S&P 500 gained just 2% amid considerable global uncertainty.

Bullish investors are already sounding off in anticipation of the uptrend continuing. Tom Lee, chairman of BitMine Immersion Technologies, says Ethereum is "dwarfing" other major assets. At least for Q3, he's right. Let's take a closer look at the case for loading up and discuss why it's best to keep overly bullish inclinations in check for the time being.

It's still down 37% over five years

One compelling reason not to bet the farm on Ethereum is that it still trades below its level five years ago.

Ether is down by 37% over the last five years. An index fund tracking the S&P 500 would have returned 85% with dividends reinvested. Even with the index frozen in place, Ether would need to gain quite a lot to catch up, and that might take a while, if it happens.

That's a tall order, but it's not an entirely absurd proposition for an asset that just gained 66% in a quarter. Pulling off a recovery to surpass the market's benchmark return would vindicate everyone who held through the slump and go a long way toward repairing the coin's reputation.

But investors should know that a climbing chart is not the same as having an investment thesis. Getting too enthusiastic with purchasing at the moment could quickly become a poor decision if Ethereum cools down a bit.

It's still worth buying

Ethereum is worth owning because it's the main hub for capital in the crypto universe.

Today, Ethereum hosts $147.9 billion in stablecoins and $17 billion in tradeable tokenized real-world assets. This means it has billions in assets, such as Treasury bills, recorded as crypto tokens on its blockchain. Capital tends to accumulate where there's already capital, and especially where there's an avenue to convert stored capital into a yield or a return. Ethereum's decentralized finance (DeFi) ecosystem offers both of those features more than any other crypto network.

Furthermore, the capital that's parked on Ethereum tends to move as its owners seek a return. The chain collected $354,748 in fees over the 24 hours ending Oct. 14. While it's true that this income is on the small side for a network of this size, it's also proof that people are willing to pay up to gain access to the opportunities there. That's a strong indicator that the coin has at least some value.

So be sure to hold some Ethereum in your crypto portfolio if you don't already.

Its next upgrade, Glamsterdam, is designed to raise the network's capacity, per the Ethereum Foundation. It went live on a test network on Oct. 6, and it's slated to hit the mainnet in the fourth quarter. Given that, it might also be worth buying a little bit more now, as long as it doesn't come from funds that should be used for safer investments.

Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.