Crypto Recovery: Ethereum (ETH) Gains Sentiment

The cryptocurrency market has recovered from lows set back in mid-June as the rally has coincided with the overall stock market pullback. Cryptos have risen at a higher rate over the past six weeks, however, as the volatile assets continue to fluctuate rapidly in price.

How are the leading cryptos performing?

Interestingly, Bitcoin (BTC) has not seen the same recovery that Ethereum (ETH) and other crypto platforms have experienced. Ethereum itself is up nearly 70% from its recent lows and is hovering around $1,000 back in mid-June, while Bitcoin is “only” up around 25% during that time frame. Part of that is that Ethereum fell heavily from early April to mid-June, as both are down about 50% from where they were at the beginning of April.

However, there are some important reasons why Ethereum is recovering at a faster rate than Bitcoin. Some of them even have to do with the technology itself for a change.

The Ethereum Merger

Ethereum 2.0 is coming soon as it prepares to complete the transition from a proof-of-work (PoW) network to a proof-of-stake (PoS) platform. The merge into 2.0 has been a long wait with many delays, but reportedly only a few tests remain before it’s finally done. The merge for Ethereum’s latest test network environment, Goerli, will take place next week between the 6th-12th. August. Then the Ethereum network merge should happen in September if the test goes as planned.

Using a PoS consensus mechanism will allow Ethereum investors to earn rewards for staking the ether. PoS systems also require far less energy than their PoW counterparts, which tend to be extremely energy intensive, which has led to many environmental concerns about the impact of proof-of-work crypto platforms. One of the other major advantages of staking systems is that only investors who are financially committed to the success of the coin can earn rewards from their staking.

Etherum’s near merger into a PoS system, and it’s most widely used platform for the development of other cryptocurrencies, has led several crypto investors to bet on its recovery.

The Fall of Bitcoin

Alternatively, Bitcoin uses a PoW model and more importantly has failed in its task of acting as an inflation hedge or asset that trades in the same way as gold. Many investors had believed Bitcoin could act as an inflation hedge as a currency with no central authority meant to mimic gold in some ways, such as a finite supply that becomes increasingly difficult to mine as less of the supply remains.

Bitcoin has fallen significantly from highs set back in November 2021 and has been more correlated to general markets, especially tech stocks, than many predicted. The cryptocurrency has suffered along with the stock market in 2022 with Federal Reserve policy decisions and international affairs such as the Russian invasion of Ukraine having a major impact on its value.

Bitcoin has reached a point where it trades far more like another technology stock than a completely uncorrelated asset class. This relationship has only strengthened as more companies invest in crypto. In fact, overall retail speculative activity is extremely correlated with the price of Bitcoin when comparing total call options contracts to Bitcoin’s price chart.

Packaging

Cryptos have had a nice recovery over the past month and a half, but still have a long way to go to reach where they were earlier in the year, let alone peaks set last November. The total market capitalization for cryptocurrencies is just under $1.1 trillion, almost half of where it was back in early April, when it was around $2.15 trillion. Tech’s biggest coin, Bitcoin, has struggled to recover as quickly from lows, while Ethereum remains a favorite to bounce back as it prepares to finally complete its merger into 2.0.