The past few weeks have been one of the most turbulent in the history of crypto assets. Ether ( ETH ) price has fallen to its lowest level in 2021 as crypto and stock markets enter a bear market.
Meanwhile, the wildly popular Terra stablecoin ecosystem suffered a dramatic collapse, wiping out around $40 billion in value. Its impact is spreading throughout the world of decentralized finance (DeFi).
However, the world of crypto assets is not all gloomy topics. Amidst the market downturn and the declining reputation of crypto assets, the Ethereum community is hard at work on “The Merge.” The long-awaited transition to proof-of-stake (PoS) networks.
There were signs that the upgrade would be postponed again until the summer, but Ethereum co-founder Vitalik Buterin said at an event in Shanghai last week that The Merge would be ready in August. It was.
The move to PoS has been planned to improve Ethereum’s security and reduce energy consumption while setting the stage for greater network capacity and improved fees. However, the recent market downturn raises important questions. Will a bear market transition dampen the effectiveness of the upgrade?
“The Merge” and investor psychology in a bear market
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First, one thing to note. I’m not a market reporter. While there are good journalists who analyze prices and report on trends in the market, this article cannot provide deep insight into how Ether prices will move as a result of “The Merge.”
Still, let’s make some predictions. For years, speculators have been pointing out that “The Merge” will drive up the price of Ether. It may even reach a level that exceeds the Bitcoin ( BTC ) price.
The basis for this was not clear. It is difficult to attribute this to the “fundamentals” of Ether price. PoS will change some aspects of Ethereum’s token economy, but like any other crypto asset, Ether prices are a reflection of general market sentiment. With the current bear market likely to continue until August, if “The Merge” were to materialize, the market reaction would probably be a chorus of “So?”.
Although the details of “The Merge” have not changed, the changes in the circumstances when it will take place will be important. The fact that Ethereum has entered a bear market will have important implications for how The Merge is received by the community and investors.
Cryptocurrency in a bear market
When it comes to crypto market downturns, we shouldn’t just focus on price. It’s not hard to predict what a depressed market will mean for the crypto industry as a whole.
As less money flows into crypto assets (and other speculative asset classes), fewer people will come into the world looking for short-term gains. Additionally, we can expect many investors and developers who entered the crypto world at the height of the crypto bull market to move on to more stable and lucrative fields.
Over the coming months (and years), many of the people getting jobs in the crypto world will be heading to big companies like Coinbase, rather than higher-risk DeFi projects or new blockchains. I can also imagine that.
As venture capital funding dries up, the new projects that survive will do so because of their talent and technology, rather than their overzealous valuations or their ability to raise capital for short-term profits.
Of course, there is also a scenario where fraudulent NFT projects or Ponzi scheme-like DeFi protocols continue to attract interest from retail investors looking for quick profits. This is especially true in a situation where high returns cannot be expected from the stock market. But it’s hard to imagine big investors spending hundreds of millions of dollars on an uncertain experiment like Terra any time soon.
Similarity to the dot com bubble
Despite all the bad news, the past few years have been extremely positive for cryptoassets in many ways. As venture capitalists rush to invest in anything that can be labeled “crypto-assets,” we’re helping risky but viable projects get funding that would have been rejected in more conservative times. I have seen it with my own eyes.
Moreover, while the NFT market and many DeFi protocols have been crushed under the weight of the broader market downturn, the boom in these sectors has provided an entry point into crypto assets for far more people.
A common but useful comparison for this period in crypto assets is the dot-com boom of the early 2000s and its bubble burst. Although many of the companies started before the bubble burst and eventually disappeared, the initial boom certainly paved the way for many that followed.
After the Dotcom bubble burst, big tech companies like Google, Amazon, and eBay went into focus mode and quietly got to work. These companies would not have succeeded without the infrastructure put in place by the ill-fated investment boom of the early Internet era.
Looking ahead to the merge
In my view, Ethereum’s efforts with “The Merge” fit here. No matter what happens, it looks like “The Merge” will happen. Even if it doesn’t provide a huge boost to Ether’s price, if developers are to be believed, it will have a long-term impact on the future of the Ethereum network.
The news that “The Merge” may take place in August comes on the heels of two successful shadow forks on the Ethereum mainnet. They are May 12th and May 20th.
A shadow fork is like a test run for Ethereum’s transition to PoS. The most severe of these, the main net shadow fork, which simulates a transition to PoS using near-real-world conditions, is the final step in the testing necessary for developers to determine that the network is ready for an upgrade. It’s one of the steps. Both forks seem to have worked well, except for a few very minor issues.
In recent weeks, the Ethereum developer community’s Twittersphere has been quite upbeat, although certainly aware of broader market conditions, thanks to news that “The Merge” is nearing completion.
Ether prices may not reflect such enthusiasm even if “The Merge” is completed, but if the past few weeks have reminded us anything, it is that prices are The consistent message is that it’s one of the most boring elements.