Ethereum Overshadowed As Markets Drive Crypto Down

For crypto insiders, Tuesday, September 6 was important. So why did the market fall off a cliff last night, with bitcoin down almost 6% and ether down almost 10%?

In a way, the answer is the same as why the traditional markets fell, mainly because “better-than-expected economic data could mean that [Federal Reserve] continues to act aggressively in raising interest rates,” CNBC said. It also sent the dollar stronger.

But in a larger sense, the answer is pretty clear that crypto is not moved nearly as much by internal industry news, but by larger market forces. That again means that crypto is no longer a financial outlier.

The internal news on Tuesday was as big as it gets in the crypto community. Traders and advocates were excited about a big update to Ethereum on September 6 that marked the beginning of The Merge, the roughly week-long process that will see the No. 2 blockchain by market capitalization — and No. 1 in importance thanks to its smart contracts — will switch to a new consensus mechanism that will almost eliminate the annual electricity bill the size of Chile, a source of much controversy and opposition to crypto in general.

See also: Ethereum 2.0 may be greener, but is it scalable enough for payments?

Ethereum 2.0 will also see scalability rise from a very congested 12-14 transactions per second (TPS) to as much as 100,000 TPS – far beyond what is needed for payments, although transaction time remains an issue – and should see damagingly high transaction fees fall.

So the blockchain like most decentralized finance (DeFi), centralized finance (CeFi), NFTs and many other blockchain-based decentralized applications (DApps) is getting a new lease of life that can help Ethereum maintain its dominant position among blockchains.

And yet, what the insider crypto community thinks doesn’t affect the price of crypto as much as what mainstream economists, bankers and investors think anymore. It’s a new reality for investing in crypto.

Who cares?

Why this matters so much is another story.

Unlike Bitcoin, the value of the Ethereum blockchain and its competitors such as Algorand, Cardano and Solana (which is down 3% to 6% Wednesday) is based on their utility.

That is, as more DApps and blockchain platforms are built on them and more customers use these tokens to make payments in transactions that happen on the blockchain, the cryptocurrencies will become more valuable.

Read more: Crypto Basics Series: The Tokenomics of Crypto

That’s not to say that there wasn’t or isn’t extensive betting on ether and other digital assets based on short-term price movements – certainly much of the crypto derivatives market is based on this, as is much of the spot market’s trading price volatility.

But among crypto-focused investors and developers, there was always a recognition of the importance of making a blockchain better, faster and stronger, in addition to building users.

And to be fair, this has played a big part in ether’s rise between mid-June and mid-August, where its price doubled. But in the last two weeks, ether has been on the decline, falling by almost a quarter.

Still, the biggest test comes next week.

Somewhere between September 13th and September 16th, the merger and transition to eco-friendly Ethereum 2.0 will take place.

September 13 is also the day the Federal Reserve will release the next Consumer Price Index numbers, which could show inflation figures leading to the Fed cracking down even harder, which has been bad for crypto.

If Ethereum 2.0 can’t beat CPI, crypto investing will never be the same.

For all PYMNTS Crypto coverage, subscribe to the daily Crypto newsletter.

NEW PYMNTS SURVEY FINDS 3 IN 4 CONSUMERS WITH STRONG DEMAND FOR SUPER APPS
About: The findings of PYMNTS’ new study, “The Super App Shift: How Consumers Want To Save, Shop And Spend In The Connected Economy”, a collaboration with PayPal, analyzed the responses of 9,904 consumers in Australia, Germany, the UK and the US and showed strong demand for a single multi-functional super app instead of using dozens of individuals.