Is It Worth Investing in Uniswap?

Last Updated October 21st 2021
22 Min Read

In less than seven months, Uniswap has moved from a relatively new token to one of the most successful cryptocurrency projects. When the Uniswap exchange launched the UNI token in September 2020, it was valued at $0.42. On 1st January 2021, the altcoin price was averaging $5.

Throughout January to May, the Uniswap coin has been riding a wild bullish momentum that saw it set an all-time high price of $43 on 29th April – representing an 860%+ price jump for the year to date, an all-time ROI of 6378.57%.

Much of this explosive growth can be attributed to three key factors. First is Uniswap crypto exchange’s popularity and rank as one of the most liquid and one of the most innovative decentralized exchanges.

Secondly, the UNI token price explosion can be closely linked to the ongoing DeFi explosion that has seen most crypto investors turn to DeFi protocols like Uniswap. Here, one can securely lock assets in liquidity pools and earn from not just the crypto price appreciation but also from a staking interest. Lastly, the ongoing crypto rally and Ethereum’s price rally have helped push the demand for DeFi protocol tokens.

But is Uniswap a good investment? What are the projections for its short to long-term price performance? Importantly, what are the benefits and risks of investing in Bitcoins today?

We explain everything you need to know before making a Uniswap investment in this guide. We start with exploring Uniswap and how it works.

If you want to invest in Uniswap quickly and easily, with 0% commission, check out eToro Exchange!

Contents:

What is Uniswap Investing?

Uniswap UNI

To understand Uniswap investing, we first need to understand what Uniswap is and how it works.

Uniswap is an open-sourced and highly decentralized exchange specializing in Ethereum and Eth-based tokens. It may also be referred to as a DeFi protocol that is hosted on the Ethereum blockchain but has UNI tokens as the native crypto for the protocol. It was designed to facilitate token exchange – also known as swaps. But unlike central exchanges that rely on order books to match buyers and sellers, swaps on Uniswap are executed by way of smart contracts.

In guaranteeing liquidity for platform users, Uniswap has embraced the highly innovative automated liquidity protocol. It incentives individuals to provide liquidity for the platform by locking their funds in different liquidity pools. The arrangement ensures the platform users get to swap different tokens instantly without having to wait to be matched with a buyer/seller. These liquidity pools keep the transaction fees earned, which are then shared with the liquidity providers on the ratio of their capital contribution.

How do you invest in Uniswap, then?

While the UNI token is designed to facilitate online transactions within the Uniswap protocol, it currently is more often used as a digital asset. You can buy and hold for speculative purposes, which essentially involves holding onto the token until its value rises significantly.

Is Investing in Uniswap Risky?

Uniswap investing promises highly attractive returns on investments. But it also brings along an equal share of risks and concerns that you must familiarise yourselves with if you hope to succeed in crypto investing.

After learning about different UNI investment risks, you then must learn how to avoid these risks. The basic precautionary measures involving investing in a reliable crypto wallet and only interacting with reputable brokerages and exchanges.

Here are the four critical risks that you need to learn and avoid when investing in Uniswap:

1. Cyberthreats

Cyber threats and crimes aren’t new to the crypto space. And as the DeFi explosion hit, with such protocols as Uniswap gaining popularity, scammers and swindlers flocked this crypto space. These swindlers would go on and introduce several types of scams, with the most common in Uniswap being Exit Scam and Rug Pull.

How do these work? The scammers take advantage of Uniswap’s biggest selling point – the fact that it allows virtually anyone to list and popularise their token on the exchange. In an exit scam, a programmer will introduce a token and invest a lot in hyping it.

They will organize a mass sale of these tokens but run away with these funds immediately or soon after the ICO. In rug pulls, moneyed scammers will aggressively market a lowly priced token and invest a handful in it, effectively pumping its prices and creating a sense of liquidity. But as soon as the token prices rise significantly, they take profit (effectively the liquidity) and abandon the project.

How can you avoid these? Differentiating a legit token sale from a crypto scam can be relatively hard – especially for novice traders. But before investing in any Uniswap project, take time to gather as much information about the project as you can. Additionally, keep tabs on crypto news and community discussions on Reddit, Discourse, and Twitter that identify and discuss crypto scams.

2. Untamed volatility

Uniswap, like any other cryptocurrency, isn’t immune to untamed price volatilities. While these rapid price breakouts are good when they align with your price prediction, they can devastate your crypto portfolio if you got the investment direction wrong.

For instance, on 15th April, one UNI Token was selling for as high as $39. Five days later, it had shed more than $11 (28%) off this price and was trading as low as $28. More established cryptocurrencies like Bitcoin and Ethereum have posed more drastic price volatilities, and nothing suggests that Uniswap is immune to equally dramatic price moves in the future.

Overreliance on Ethereum:

Uniswap is not an autonomous crypto project – seeing that it hosted on the ethereum blockchain. The future of its crypto exchange and coin prices are, therefore, tied to Ethereum at the hip. And the link is further reinforced by the fact five of the largest liquidity pools on the Uniswap exchange are ETH-based.

It is also interesting to note the impact that recent ETH price jumps have had on UNI token prices. They even reached their first price peak for the year on the same date – 21st Feb. Taking these into account, you would be correct to conclude that should the Ethereum project fail, down with it goes Uniswap.

Read Also: Is Uniswap A Good Investment?

3 Common Ways to Invest in Uniswap?

As more individuals with different expertise join the crypto industry, they bring onboard more unique ways of investing in cryptocurrencies like Uniswap. Less than ten years ago, there was little you could do with your crypto, safe for HODLing – perhaps this explains why someone thought it wise to buy Pizza with 10,000 BTC. Today, however, there are countless ways in which you can use your cryptocurrencies to use, from Holding to investing to staking.

Let us go over the three most common ways of investing UNI tokens online:

  • HODLing/Buy and hold
  • Become a liquidity provider
  • Active trading

One: Buy and hold Uniswap

Buying and holding onto UNI tokens is perhaps the most popular and the easiest form of investing. It may also be considered one of the easiest forms of UNI investing, and it appeals best for medium to long-term investors. It involves buying UNI altcoins today and holding them for a long period in anticipation that their valuation goes up.

The secret to making a kill when HODLing is by buying at a dip (when the altcoin price is at its lowest) and selling once it peaks. And to identify this dip (entry point) and the peak (exit) price points, you will need to invest a lot of time in the technical and fundamental analysis of the UNI token.

The biggest advantage of buying and holding onto cryptos is that virtually all legit digital assets have been uptrending. When investing in UNI for the long haul, you don’t have to worry about short-term price volatilities. It, however, isn’t uncommon for altcoins to stabilize at relatively low prices for years. UNI tokens aren’t immune to this, which means you have to keep tabs on its prices and set a stop loss. It ensures that it doesn’t fall too far from the purchase price and locking you in a loss position for a long time.

Read More: How to Buy Uniswap - Beginner’s Guide

Two: Stake Uniswap in liquidity pools

You can also stake your UNI tokens in a liquidity pool within the Uniswap DEX, effectively becoming a liquidity provider. Staking can also be viewed as a form of buy and hold, only that it allows you to double your earnings. When staking UNI tokens, your investment capital will grow not just from the UNI token value appreciation but also from staking interest.

How does it work? To stake UNI tokens in the Uniswap decentralized exchange, you start by acquiring the UNI altcoins. You can swap them on the platform for other ETH-based crypto or simply by some in one of the popular exchanges around. You will then need to commit these tokens to one of the UNI-based liquidity pools on Uniswap – say, the popular UNI/ETH pool that currently has a market capitalization of over $217 Million.

When platform users trade against your liquidity pool, they will be charged a 0.3% transaction fee. And seeing that Uniswap is fully decentralized, all these earnings are collected by the pool and shared among the liquidity providers – based on a percentage of their contribution. For instance, if your UNI token contribution is 10% of the pool, you will earn 10% of the fees collected by the pool.

In addition to the double reward from value appreciation and staking earning, staking doesn’t take away control over your digital assets. You can withdraw from a liquidity pool as easily as you joined. There is no risk of losing your UNI tokens through staking, but you need to familiarise yourself with the different crypto scams targeting liquidity providers.

Note also that there are several other DeFi protocols that also encourage the staking on UNI tokens. The most popular are the Cream.Finance, CryptoLocally, and even the LtoNetwork.

Three: Trade Uniswap

There is more to crypto investing than just HODLing and staking – you can also day trade UNI tokens. Short-term traders have also flocked the market, looking to take advantage of the crypto market volatilities. There are different forms of UNIswap trading, and they all involve buying UNI tokens and selling them as soon as the price turns in your favour. In most cases, you UNI token traders hold onto the coin for a few minutes, hours, or days. The most common forms of UNI token trading include:

Spot Uniswap trading

When spot trading Uniswap, you buy a UNI token from a regular exchange and sell it as soon it appreciates in price. It involves buying the actual token, and you can only make a profit if its price increases to a level high enough to cover both the purchase price and transaction fees. Otherwise, you stand to lose if the coin loses direction.

CFDs Uniswap trading

Cryptocurrency CFDs are offered by online CFD brokerages. When trading UNI CFDs, you are essentially against the price direction of the altcoin prices- often against the brokerage. You can go long (buy) or short (sell) the UNI tokens and make a profit when the UNI token prices move in your favour.

The upside to CFD trading is that brokers give you access to leverage which can boost your profitability exponentially. The downside, on the other hand, is that this leverage will also exaggerate your losses to an extent of blowing up your investment capital if used without moderation. Brokerages that currently support UNI CFDs include AvaTrade, CEX.io, and FxEmpire.

Arbitrage

Arbitrage, on the other hand, involves buying UNI tokens at one exchange (where they are lowly priced) and selling them at another (where they fetch higher value). In most cases, the difference in price values between these exchanges is barely a few cents. You, therefore, need significant investment capital if you are to make tangible profits. It also involves holding onto a purchase for a few seconds as they transit from one exchange to another.

UNI Trusts

On 29th January 2021, Grayscale Investments officially added the UNI token Trust as a tradable instrument on their website. It implies that you can UNI Trusts can now be traded publicly on over-the-counter exchanges. Note, however, that unlike spot, arbitrage, and CFD trading that is open to virtually anyone, UNI TRISTS are only available to accredited investors.

Check Out: How to Trade Uniswap: A Step-by-Step Guide

Where to Invest in Uniswap?

UNI tokens have only been around for about seven months. Unlike most of their ERC-20 token counterparts that find it hard to outgrow the DeFi ecosystem, UNI tokens were met with unprecedented demand by the crypto community. This helped them find a way onto the most popular exchanges and crypto trading platforms.

So how do you invest in UNIswap today?

Step 1: Start by opening and verifying a crypto account with a reputable exchange like eToro.

Step 2: Fund the account – you can deposit either Fiat or cryptocurrencies.

Step 3: Buy the desired amount of UNI Tokens using the balance deposited and store them in the crypto wallet.

Step 4: Proceed to trade these coins by taking advantage of price volatilities, HODL, or stake them in one of the DeFi platforms.

Some of the most reputable platforms where you buy Uniswap tokens include:

Now that we understand what Uniswap investing entails and the different methods of Uniswap investing, let us now look at the pros and cons of investing in UNI tokens.

Advantages of Uniswap Investment?

Despite having been around for just a few months. Uniswap has carved a niche for itself within the crypto space. Its popularity both as a trading instrument and store of value continues to soar and is evidenced by the rapidly growing number of Uniswap exchange accounts.

But what are some of the advantages of investing in the UNI token:

  • Double rewards: UNI token investors stand to benefit doubly from not just value appreciation of the tokens but also from stake earnings from Uniswap’s yield farming.
  • Potential for high returns: Analysts and investors alike are convinced that even recording 800%+ ROI for the year – thus far – there is still room for growth and that Uniswap is expected to post highly attractive returns moving forward.
  • Highly transparent: The process of earning interest from staked UNI tokens on the decentralized exchange is quite transparent.
  • Easily accessible: UNI tokens are easily accessible to the different classes of crypto traders as it is currently on virtually all popular crypto exchanges and trading platforms.
  • Inexpensive: The transaction fees associated with acquiring and liquidating your UNI portfolio are relatively low, especially when compared to equally popular cryptocurrencies like Bitcoin and Ethereum.

Disadvantages of Uniswap Investment?

Away from the transparency and attractive returns on investments, there are several demerits to investing in the Uniswap cryptocurrency. These include:

  • Over-reliance on Ethereum: Uniswap is a DeFi protocol that is domiciled on the ethereum blockchain. It doesn’t have an independent blockchain network but over-relies on Eth.
  • Price corrections: After virtually every extended crypto bull run comes the price correction period that is commonly associated with a significant loss in value for different cryptocurrencies. There is no telling when the UNI token prices will correct and to what extent.
  • Limited acceptance: There is little you can do with the UNI token today – safe for HODLing and staking, unlike popular cryptos like BTC, ETHA, or XRP that can also be used to pay for goods and services.
  • Limited data for analysis: Uniswap cryptos have only been around for just a few months. There isn’t much UNI token data to help traders and investors make informed investment decisions.

How Much Should I Invest in Uniswap?

The answer to how much you should invest in Uniswap UNI tokens is relative and pegged on so many variables. But the age-old rule of thumb to investing that you should never invest more than you can afford to lose holds true here as it does in the conventional investment sphere.

We also advise you to take into account several considerations when deciding on how much to invest in Uniswap:

  • Start small: There are two primary reasons why you should consider starting small with your UNI investments. First, because they are relatively new, and secondly, because crypto investments are very volatile. By starting small, you get ample time to understand the crypto better and create the correct strategy.
  • Invest time in price analysis: When you dedicate enough time to analyze the technical and fundamentals of UNI tokens, you gain a better understanding of the coin’s volatility. This comes in handy in deciding how much to commit to the trade.
  • Consider the investment type: Long-term investments are more adaptable to crypto market volatilities. The risk of losing your investment in such a case is relatively low, giving you a leeway to commit more funds to HODLing. The same cannot, however, be said of short-term investments, which can be easily erased by sudden fluctuations.

Uniswap Price Prediction: How High Can the Price Go This Year?

The first step to succeeding as a crypto investor is by learning how to analyze the market and accurately predict the future price of an asset. It starts with learning about the different factors affecting the price of Uniswap UNI tokens and how each influences its price action.

To help you get started on how to accurately predict Uniswap’s price moving forward, we introduce you to the different types of price analyzing crypto UNI prices, namely: 

  • Fundamental analysis
  • Technical analysis
  • Sentimental analysis

Fundamental analysis

Fundamental analysis involves vetting the different factors that play a central role in determining the value of the UNI token. You then proceed to determine how both expected and unexpected changes to these factors may affect the price of the cryptocurrency.

When it comes to UNI tokens, some of the fundamental features affecting its future price include upcoming protocol upgrades, its price correlation with Ethereum, the token’s adoption rates, government/authorities reaction to the token,  price performance, and upgrades to its competitor protocols like Sushiswap, liquidity of its pools, and liquidity of the DeFi ecosystem.

These all have a direct impact on the future price of Uniswap UNI tokens. For instance, if Ethereum crashes or a competitor overtakes Uniswap in adoption rate and liquidity levels, UNI token prices plummet and vice versa.

 If you expect an improvement in factors affecting UNI token prices positively, you can bet on the UNI token prices ending the year on a positive. The extent of the improvement will, in turn, determine the altcoin price.

 Fundamental analysis is ideal for both short and medium-term price prediction.

Technical analysis

In technical analysis, you are only studying Uniswap UNI token price performance and using it to predict UNI token prices. Here, you will need to familiarise yourself with the different technical analysis tools that relate to such aspects of the UNI price as volume, momentum, and price charts.

By looking at how the price of UNI changed in the past in relation to such factors as the volume of trades or chart formations, one can then predict the coin’s future price performance in case of repeat trends.

Technical analysis appeals most and is primarily relied upon by short-term traders.

Sentiment analysis

Sentimental analysis has in the recent past become an integral part of price prediction. It involves assessing the rest of the investors’ views and opinions about the current and future price action of Uniswap and using this information to predict the coin’s price. Most exchanges and brokerage platforms have integrated a sentiment tab that indicates whether the market opinion is inclining towards a buy or sell action.

If sentimental analysis suggests a very optimistic market, you are confident that the UNI token prices will continue with the uptrend. If the market is pessimistic about the UNI token, it implies that fewer traders will be interested in the altcoin and thus the start of a bearish trend.

Some of the data sources that you can use to assess the market sentiments towards Uniswap include social media (especially Twitter), search terms on different search engines, and published content. For instance, if there is a lot of positive chatter on social media, if most searches on Google/Bing/Yahoo about Uniswap are positive, and if most of the content published about UNI Tokens is positive, these are indicators that the market is optimistic about current and future UNI prices and vice versa.

The analysis detector can give out a strong positive, positive, negative, or strong negative sentiment. The stronger the sentiment report, whether positive or negative, the powerful the optimism or pessimism about its future price performance.

Don't Miss: Uniswap Price Prediction

Bottom Line: Is Uniswap a Good Investment?

It is no doubt that Uniswap is on a path to becoming one of the top cryptocurrencies. We have already seen a number of good reasons why Uniswap could be a stable investment. UNI will no doubt see more mainstream adoption than most of the more established cryptocurrency platforms out there.

Experts predicted that Uniswap value could reach as high as $90 by the very end of 2021and $250 by the end of 2025. Digitalcoin predicts that Uniswap could reach $80 as early as August, and then increase to $95 by December 2021.

In the seven short months that Uniswap has been around, it has posted an ROI of over 10,000%. It has also posted one of the fastest ascents towards becoming the 9th largest cryptocurrency with a live market capitalization exceeding $22 billion.

The Uniswap altcoin is currently enjoying a bullish run, and analysis from leading crypto experts suggests that it will continue soaring for the better part of the year.

Some of the factors that are expected to continue driving up Uniswap prices include the congoing crypto run, positive ETH performance, the much-anticipated Uniswap V3 protocol upgrade, and the ongoing DeF explosion. These have aroused a positive market sentiment that both investors and DeFi experts expect to continue to fuel the UNI Token price uptrend. UNI is, therefore, a good investment today.

Don’t take our word for it, though. Hereinabove, we have gone over everything you need to know about UNI investing. By going through it, you will appreciate the different types of UNI investing, where to invest, understand how much you can invest in UNI, and use analysis tools to predict future UNI price and come to a determination on whether UNI is a good investment. 

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