Ethereum’s Moment in Sun Overshadowed as Markets Drive Crypto Down

For crypto insiders, Tuesday, Sept. 6 was momentous. So why did the market fall off a cliff last night, with bitcoin down almost 6% and ether off almost 10%?

In one sense, the answer is the same as why the traditional markets tumbled, largely because “better-than-expected economic data may mean that the [Federal Reserve] continues to act aggressively in hiking interest rates,” CNBC said. That also led the dollar stronger.

But in a larger sense, the answer is quite clearly that crypto isn’t moved nearly as much by internal industry news but by larger market forces. That in turn means crypto isn’t a financial outlier anymore.

The internal news Tuesday was as big as it gets in the crypto community. Traders and advocates were excited by a major update to Ethereum on Sept. 6 that marked the beginning of The Merge, the roughly week-long process that will see the No. 2 blockchain by market capitalization — and No. 1 in importance thanks to its smart contracts — will switch to a new consensus mechanism that will nearly eliminate its Chile-sized annual power bill, a source of much controversy and opposition to crypto in general.

See also: Ethereum 2.0 May Be Greener, but Is It Scalable Enough for Payments?

Ethereum 2.0 will also see scalability climb from a badly overloaded 12-14 transactions per second (TPS) to as much as 100,000 TPS — well beyond that needed for payments, although transaction time remains an issue — and should see damagingly high transaction fees tumble.

So, the blockchain that most of decentralized finance (DeFi), centralized finance (CeFi), NFTs and many other blockchain-based decentralized applications (DApps) is getting a new lease on life that could help Ethereum maintain its dominant position among blockchains.

And yet, what the insider crypto community believes doesn’t really affect the price of crypto as much as what mainstream economists, bankers and investors think anymore. There is a new reality to investing in crypto.

Who Cares?

Why this matters so much is another story.

Unlike Bitcoin, the value of the Ethereum blockchain and its competitors like Algorand, Cardano and Solana (which are down 3% to 6% Wednesday) is based on their utility.

That is, as more DApps and blockchain platforms are built on them and more customers use those tokens to make payments in transactions that occur on the blockchain, the cryptocurrencies will become more valuable.

Read more: Crypto Basics Series: The Tokenomics of Crypto

That isn’t to say there wasn’t or isn’t extensive betting on ether and other digital assets based on short-term price movements — certainly, much of the crypto derivatives market is based on this, as is a great deal of the spot market’s trading price volatility.

But among crypto-focused investors and developers, there was always an acknowledgment of how important making a blockchain better, faster and stronger, as well as building up users, is to its value.

And to be fair, this has played a big part in ether’s rise between mid-June and mid-August, in which its price doubled. Yet for the past two weeks, ether’s been on its way down, dropping by nearly a quarter.

Still, the biggest test will come next week.

Somewhere between Sept. 13 and Sept. 16, the merge and switchover to environmentally friendly Ethereum 2.0 will take place.

Septe. 13 is also the day that the Federal Reserve will release the next Consumer Price Index numbers, which could show inflation numbers leading the Fed to clamp down even harder, which has been bad for crypto.

If Ethereum 2.0 can’t beat the CPI, crypto investing will never be the same.

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