What now?
Views expressed in this article are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.
Ethereum merged successfully to the Beacon chain in the early hours of Thursday, marking the completion of the most significant technological upgrade in crypto’s recent history. Upon merging to Proof-of-Stake consensus, the leading smart contract platform saw a 99.98% reduction in energy expenditure – shaving roughly 0.2% off global energy consumption.
Unfortunately, markets didn’t share the crypto community’s exuberance, with ETH falling >5% against BTC following the merge’s finalisation. It didn’t take long for online sentiment to shift, with ETH plummeting 8% to $1,5k support and BTC once again dropping below $20k.
Ironically, on this auspicious day, crypto’s total market cap lost $30B, placing it firmly below the hallowed $1T mark.
ETH has seen far better days (ETH:BTC)
Searching for shelter
The strength of the Merge narrative has provided market participants with ample optimism in recent months. Now that it’s come and gone, crypto finds itself in a no-man’s land of sorts as investors await the emergence of a fresh narrative to drive bullish sentiment.
The power of narrative is paramount, especially in a nascent market like crypto. Without it, the space is largely unshielded from the external stressors of a deteriorating macro climate.
Throw this week’s above-forecast CPI print into the mix, and it becomes clear that bulls will need to search hard for short- to mid-term theses. Last month’s flat print presented the possibility that inflation may have peaked in the US, paving the way for the Fed to ease its stringent rate hikes. However, with inflation increasing in August, Jay Powell and his cohort have even more reason to double down on their tightened monetary policy. Dreams of a soft landing and a return to 25bps hikes have been resigned to the realm of imagination for the time being.
Forward focus
While there isn’t presently a clear path ahead for crypto, it’s important to remember that we remain in a space barely beyond its infancy. Ethereum’s core developers consider the network only 40% complete, and Vitalik has laid out plans for four further improvements that he claims will see the network scale to support 100,000 transactions per second.
In the days ahead it’s likely that some interesting dynamics will emerge as ETH’s forsaken miners rush to deploy Proof-of-Work forks of Ethereum. While their likelihood of success is dubious at best, the current situation is an exciting dynamic of consensus-maximalist competition, yet another chapter in an argument that’s been raging since Peercoin pioneered PoS in 2012.
With winter rapidly approaching in the northern hemisphere and risk assets continuing their year-long decline, patience, more than ever, is crucial. We now know well that catching falling knives is a dangerous endeavour, and currently the knives in play are rotating at impossible speeds.
In the words of the late and great Douglas Adams – don’t panic. We’re on the flailing side of a cyclical global economy, but as the name suggests, upward momentum will resume once the dust has settled. Perhaps the key question is, are you adequately prepared for the buying opportunities to come, whatever form they may take?
