Are there any worse markets for cryptocurrencies?
Yes, according to industry experts, who also outline three worst-case scenarios for 2023.
The collapse of industry titans like the digital asset exchange FTX, the algorithmic stable coin , and the now-defunct hedge fund Three Arrows Capital in 2022 severely hurt the cryptocurrency markets.
According to data from Messari, the market valuation of the sector is down more than 65% from record highs in November 2021, with bitcoin and Ethereum down more than 60% year to date.
Many people are wondering if things could become worse.
For background, the industry experienced a “crypto winter”-style 18-month bear market from 2018 to 2019.
“We anticipate that some dominoes will still fall in 2023 since contagion takes a while to fully manifest. Having said that, we expect that trend to be a significant theme of 2023 as we are already observing a renewed effort to build stronger, more reliable solutions in the area “
Because US hedge funds own the majority of Genesis’ assets, “the eventual demise of Genesis has been a matter of concern for some time, and the market has already adjusted for this news,” Andrei Grachev, the Managing Partner at digital asset market creator DWF Labs, told Insider.
“While the collapse may not have a significant effect on the industry overall, it signals the end of an era as DCG, long anticipated to be the last domino to fall, will finally succumb,” he continued.
If a sizable company like Genesis or its parent company DCG were to declare bankruptcy, there might be significant losses and liquidations throughout the industry.
“Bankruptcies and legal battles will last for many years. The coins from Mt.2014 Gox’s bankruptcy are still awaiting distribution today “
Edge & Node co-founder and CBO Tegan Kline spoke with Insider about the company. The scenario between DCG, Genesis, and Grayscale is currently the largest unsolved issue, and we are waiting to see what happens there.
This year, the FTX contagion may also result in more bankruptcies and legal actions.
According to Fedor Muegge, partner at blockchain venture capital firm 369 Capital, the sector hasn’t yet completely experienced the impact of the FTX or Terra and Luna explosions.
“We haven’t even begun to fully disentangle FTX and its corporate network. More lawsuits may result from further research on this and inquiries into other recent events, including the Terra-Case “Muegge declared.
Additionally, during this protracted down market, many smaller players may run out of money, which will eventually result in more bankruptcies, he continued.
Why is today’s price of Ethereum (ETH) lower
The price of Ethereum is now declining, and a long range of issues might keep it that way for some time.
The price of ether, which was trading at $1,388 on December 16, fell after the Federal Reserve’s Jerome Powell made hawkish comments following a 0.50% increase in interest rates, erasing the pre-FOMC surge to $1,350.
The market-wide slump that caused Ethereum network fees to drop by 39.90% over the previous 30 days is followed by the sell-off in ether.
Decentralized finance also saw a 4.49% reduction in 24 hours in the total value locked in Ethereum-based smart contracts.
Regulators are working quickly to implement new rules for the cryptocurrency industry in the wake of the FTX exchange debacle.
While some analysts think Ethereum still has many bullish factors working in its favor that make it worthwhile to hold the asset, on-chain data portrays a bleak picture of its near-term price prospects.
Here are three causes of today’s decline in the price of ether.
As total income declines, Ethereum becomes inflationary.
Daily fees on the Ethereum network decreased to $2.9 million from pre-FTX levels of $12.8 million on June 13, which caused the price of ether to decline. In addition to the fees dropping, the network’s daily active users (DAUs) decreased from a peak of 961,196 users on July 26 to just 367,000 DAUs on December 16.
Tokenomics post-Ethereum merge was created to aid with the deflation of Ether. The price movement of Ether coincides with a decrease in Defi utilization.
A prominent method for assessing the status and mood of a Proof of stake (PoS) blockchain like Ethereum is the total value locked indicator. On March 31, Ethereum’s TVL hit a yearly high of $83.9 billion, but since then, it has lost close to $60 billion. The network’s TVL was $23.46 billion as of December 15th.
The top 10 Ethereum protocols by market cap all experienced a decline in TVL and fees for a week. Notably, TVL fell by 5.82% and 3.49%, respectively, for MakerDao and Uniswap UNI $6.01.
Investor confidence is nonetheless being weighed down by regulatory pressure.
The Invest in America Act (also known as the infrastructure bill) was approved by Congress on August 9 and signed into law by Joe Biden. The measure received criticism from the blockchain community for what they considered to be detrimental language. The law is scheduled to go into effect in January 2024.
Centralized exchanges (CEX) might be required to remove Ether from their list of available coins for US-based users if it is determined that it is a security in the US. The security classification may potentially hurt Ethereum-based decentralized exchanges (DEX), DApps, and alternative currencies. Ether has not yet been determined to pass the Howey test by the Securities and Exchange Commission (SEC).
Additionally, it doesn’t appear that the Commodity Futures Trading Commission’s (CFTC) declaration of Ether as a commodity has allayed investor concerns.
Expectations from investors for 2023
The price of Ether is likely to stay low despite the impending Shanghai hard fork, which will allow users to unstake Ether in March 2023.
While interest in Defi and investors’ willingness for high-risk assets may continue to decline, other factors, like authorities’ positions on cryptocurrencies and the eventual expansion of Ethereum network-based protocols, may act as long-term catalysts for price growth.
Q1. Will Ethereum ever recoup?
Overall, the price estimates for Ethereum between 2022 and 2030 appear to be promising as a long-term investment. Ethereum is expected to rise throughout the short- and long terms. Long-term projections, however, indicate a bigger increase in ETH’s value.
Q2. Why is Bitcoin currently falling?
While many reasons contribute to cryptocurrency’s general volatility, the collapse of FTX, one of the most well-known crypto exchanges, is the primary cause of this precipitous decline.