Ethereum (ETH) cemented its position as the world’s second largest cryptocurrency in 2022. The protocol change by “The Merge” marked a historic event. What else has happened around Ethereum and what to expect in 2023?
As the 2022 crypto year kicked off on January 1, the stage for Ethereum (ETH) looked set for a gala show: ETH was trading at just under $3,700, building on advances also captured in our review. of the year ETH 2021. But the final statement at the end of December is sobering from an investor’s point of view: in the past twelve months, the price curve of Ethereum has fallen by 70% and is currently hovering around 1,200 U.S. dollars. How did this happen and what speaks of a successful future for Ethereum?
Price drop at Ethereum in 2022 – trend stop failed
ETH price was able to break away from overall market trends for short intervals at most throughout 2022. When the ecosystem around Terra (LUNA) comprising the algorithmic stablecoin UST collapsed like a castle cards in May, shockwaves hit Ethereum especially in the important decentralized finance (DeFi) sector. ETH sets the tone there and the loss of trust caused by Terra has spread to Ethereum.
In mid-June 2022, Ethereum was struggling not to fall below the psychologically important $1,000 mark. An important factor for the price drop: In order to realize the long-prepared protocol change at Ethereum via “The Merge”, it has been possible since the end of 2020 to make ETH available for staking in a closed environment and thus getting attractive interest rates. But market turmoil and uncertainty over the launch date of “The Merge” even swayed the planned 1:1 Lido Staked Ethereum (stETH) to ETH bond and the jitters spread.
“The Merge” makes Ethereum future-proof
Then, after some delays in July 2022, “The Merge” was scheduled for September, Ethereum was able to recoup some earlier losses. After all, “The Merge” should mark a groundbreaking event for Ethereum. Until then, the world’s second-largest cryptocurrency ETH, like Leitwolf Bitcoin (BTC), had used proof-of-work (PoW) as its technology protocol.
With “The Merge”, Ethereum moved away from PoW, which was criticized as an energy-hungry protocol and had long since reached the capacity limits of ETH. Since September 15, 2022, Ethereum has been based on the modern Proof-of-Stake protocol, and “The Merge” has finally gone smoothly. But in terms of price, this fundamental technological breakthrough was obviously already factored in at ETH.
FTX bankruptcy doesn’t leave ETH cold either
Ethereum therefore had nothing to oppose to the second big bankruptcy of the crypto year 2022. When the crypto exchange FTX had to file for bankruptcy in November, not only the second largest exchange in the world for Bitcoin and Co .is gone, but the domino effects have continued, even in the DeFi sector. In this negative trend, Ethereum’s achievements associated with “The Merge”, such as the deflation that was initiated, are lost.
Ethereum PoW (ETHW) Remains a Footnote in Crypto History
An unpleasant side effect of “The Merge” from a neutral point of view was that after the hard fork an attempt was made to continue the previous version of ETH with Ethereum PoW (ETHW) with Proof-of-Work as protocol. Experts had already classified this plan as hopeless beforehand and ETHW fell to a price below 3 US dollars. But Ethereum PoW has caused confusion among inexperienced investors.
Flipping still realistic for Ethereum?
Mid to long-term investors believe that Ethereum may overtake Bitcoin as the top market cap for the foreseeable future. Such a scenario is called a “rollover” in crypto jargon. The restructuring at ETH caused by “The Merge” supported the “Flippening” theses – but only in theory.
In fact, the market shares of Bitcoin and Ethereum have barely moved in the crypto year 2022, BTC occupies around 40% of the overall market capitalization and ETH reaches almost 20%. At least in turbulent times, investors still prefer to rely on Bitcoin like a rock in the surf, Ethereum remains “digital money”.
Conclusion: Ethereum must consider special effects in 2023
If the Terra and FTX crashes hadn’t dominated the crypto year 2022, Ethereum would be in great shape – so many ETH proponents say. But arguments in the subjunctive aren’t worth the money, and Ethereum’s disappointing price curve speaks for itself. However, The Merge was groundbreaking nonetheless, proving that Ethereum is capable of technological reform. In 2023, the path to Ethereum 2.0 will continue and the first possible station is the “Shanghai” update currently scheduled for March. This removes ETH from staking again. This affects approximately 13% of the total stock of all Ethereum and therefore has the potential to negatively influence the price curve of ETH through selling.
So there are plenty of indications that Ethereum will struggle to generate its own momentum in 2023 as well. nearly $5,000 from November 2021 as a benchmark.