Ethereum has suffered a steep decline in value, dropping sharply from $731 3 months ago to $258 at the time of writing – a fall of over 60%. Even those investors who managed to “buy early” – that is to say, 1 year ago and before the bull run of November-January 2017/18 – are now down 14% on their investment. Investor interest in buying Ether is at rock bottom, no more than a few percent of what it was in December 2017, and market sentiment does not look likely to recover any time soon. This latest bear market has all the hallmarks of the 2013-2016 “crypto recession”, but on a much larger scale, with many billions more at stake and much broader press coverage.
This price decline is not exclusive to Ethereum, every cryptocurrency that was trading in January 2018 has had at least half of its market value wiped out; the market capitalization of the market as a whole has fallen from $750bn to $190bn. Bitcoin’s dominance – its market cap as a percentage of the entire crypto market cap – is also steeply increasing, looking set to reach its October 2017 value of 60% after an all time low of 32% in January 2018. The dramatic changes that were seen over the last 12 months appear to be getting “rolled back”.
When Bitcoin crashed from $1200 in December 2013, it would take 3 years for the price to recover. The majority of that time was spent moving sideways, boring investors into submission and generating a wave of “Bitcoin is dead” melodrama. We all know the story of what happened next, but such hindsight is still of little comfort today. Perhaps this time it’s different? Perhaps there won’t be a recovery; the world seems to be doing just fine with fiat, and Bitcoin can’t even be used to make jewellery, how could any of this possibly be worth anything? /s
While the entire market is falling, Ethereum is falling at a faster rate, and much faster than Bitcoin. There is some rationale to this pattern. While nothing has fundamentally changed, (1) Ethereum has not reduced its supply issuance like many expected with the launch of Proof of Stake – a protocol upgrade which has been “around the corner” for a year now. (2) A multi-billion dollar ICO industry, whose funds were raised almost entirely in Ether, have realized their USD value in order to pay for staff (lol), operations (lol) and R&D (lol). (3) Augur deployed the most anticipated dApp on the Ethereum main net and adoption has been very low. In summary, the whole ecosystem feels a lot like the aftermath of the DAO in 2016, where its inception served only to confirm that this technology is still so early.
And the market would certainly agree with this sentiment, yet there may be some way to go. Ethereum needs to implement on-chain scaling solutions such as Sharding and Plasma Cash, as well as off-chain scaling (as seen with the Loom Network and Enjin) in order to attract mainstream applications. Ethereum has demonstrated numerous applications for fundraising, dApps, crypto-collectables (NFTs) and payments, as well as being the basis for the Dai stablecoin which has shown enormous resilience during this latest crash, but lacking the infrastructure to support users has highlighted just how limited the network is.
While the list of dApps operating on Ethereum and their user count may be minuscule, it is light years from where it was 2 years ago. It is now Ethereum’s turn to fight through its first major crash along with the toxicity and panic that is typically associated with it, exiting the other side with a fundamentally improved network that can live up to the expectations of a mainstream audience. For investors, now is the time for patience, and for an emotionless reconciliation with their position in this market.