Ugh. Not a good two weeks for Ethereum investors, as DeFi King fell below $1,700, now trading 55% below its New Year’s Day open of $3,722.
BTC Dominates
Of further concern for fans of Vitalik’s creation will be the underperformance against Bitcoin over the last month or so. While the market as a whole has plummeted amid the macro sentiment and fallout from the Terra circus, there have at least been small relief rallies over the last few days for Bitcoin. Ethereum, on the other hand, has been pretty much constantly dropping.
The chart below shows its performance against Bitcoin. ETH strongly outperformed BTC in 2020 and 2021 as the bull market raged and ETH capitalized on its higher volatility and smaller market capitalization. However, as the market has turned this year, we have seen BTC reassert its dominance over all things crypto, as it has always done in pullback times.
Additional Problems
Digging into the fundamentals here throws up factors for ETH’s decline beyond simply the bloodbath taking place across the board. That is the fabled Merge, which has been promised, postponed and re-promised for as long as crypto enthusiasts can remember. At this point, the Merge triggers traumatic memories in my mind of lockdown back home in Ireland.
I think we had five lockdowns in total, ranging from three weeks to 6 months. Each brought promises that it was the last, but they just kept coming, thick and fast. Curfews at 8 p.m., 2 km perimeters around his house, exercise quotas and more, it was a constant exercise in kicking the road, as our government repeatedly failed to meet its own goals and did not plan accordingly.
While the ETH Merge is still seemingly slated for August, last week was a reminder that it is far from set in stone, as it hit a stumbling block when the Beacon Chain went through a seven-block reorganisation (or reorg) last week. To be exact, seven blocks from number 3,887,075 to 3,887,081 were knocked out of the Beacon Chain between 08:55:23 and 08:56:35 AM UTC.
To translate this into non-computer language, a reorganization is the name given to an event when a block that was part of the main chain (the canonical chain) is knocked down due to a concurrent block beating it. Typically, this can happen via a malicious attack or a bug.
Ethereum developer Preston Van Loon suggested that in this instance it happened due to a “non-trivial segmentation” of new and old client node software, ruling out any malice. Ethereum co-founder Vitalik Buterin declared his theory a “good hypothesis.”
My minds
It’s a hiccup but nothing to worry about long term. However, it certainly showed just how tenuous the schedule for August was. While many have long since given up on predicting the timing of this elusive overhaul, the enormity and scale of the project has certainly been underestimated by the cryptocurrency community.
The latest dip in Ethereum – it wobbled significantly last week while Bitcoin trudged along just fine – can likely be attributed to this extra doubt over the roadmap. With the upgrade largely priced in for August, and the market uber-sensitive right now as investors simply try to survive, news like this will always trigger selling.
With sentiment worse in the broader market than at any time after the GFC, and cryptocurrency facing all sorts of tough questions in the wake of the Terra implosion, the space simply needs Ethereum. to hold its end of the bargain and get away with a Merge success.
I believe we are still on course for that in August – with the Ropsten testnet merge providing some good news earlier today, one of the deciding events before application to the mainnet. But then again, I believed lockdown would last three weeks, and I ended up spending so much time in my bedroom over the last two years that I forgot what the sky looked like.
Hope I don’t repeat my past mistakes here.
