Crypto-assets: the summer of all dangers
The Blockchain Chronicle. The topic that is getting the most attention is Merge, a new version of the Ethereum protocol with two big changes in the way it works.
The crypto-asset market experienced an unexpected surge during the month of July. In the first six months of this year, the total estimate was cut in half, from $3 trillion to $1 trillion. This is not a new phenomenon, as the volatility of this market is well known, and such declines have already occurred on several occasions.
The usual skeptics have of course heralded the eventual death of the crypto-asset market, which is not based on tangible value, and compare it to a giant Ponzi market. This is not the case, and the basic technology has once again shown its solidity and the interest it can provide for increasingly diverse economic activities.
The correlation between the crypto-asset market and the Nasdaq is still very high, and there has been a revival since mid-July. Several positive points convinced American investors, especially the unemployment figures and the drop in raw material prices, primarily oil.
However, it should be borne in mind that the volumes are significantly reduced compared to, for example, the month of June, with a large number of professional players on vacation. The current bull run is therefore potentially fragile and could quickly reverse.
Regarding indicators specific to the crypto ecosystem, there are two important points to note. First, the first half of 2022 was strongly marked by the bankruptcy of several major players in the market, starting with the Terra project, which led to the collapse of credit and investment platforms such as Celsius and Three Arrows Capital. These bankruptcies sent the market into a state of panic during May and June.
These issues seem to have stabilized now, and we bet companies working on the same models will be eager to learn the lessons.
But the topic that attracts the most attention of the market is Merge, a new version of the Ethereum protocol that should see the light of day in mid-September, with two big changes in the way it works: the transition to proof-of-stake and a sharp drop in the monetary creation of this asset.
The transition to proof-of-stake is primarily an environmental issue: the electricity consumption of the Ethereum protocol should be reduced by 99% and encourage players who have chosen other blockchains to develop their projects to reconsider Ethereum, even today the leader in smart contracts. platforms.
The consequence of the transition to proof of stake will be a sharp drop in the creation of new Ethereum units. The asset should therefore become more deflationary than Bitcoin, well known for its cap set at 21 million units. This permanent reduction in supply, coupled with demand that remains significant for other assets in terms of valuation, could cause prices to rise in the long term.
The assets that showed the best performance during the month of July are therefore of course Ethereum and the tokens that depend on its blockchain, especially all those that offer decentralized financial services. Most players are therefore confident that the transition to the new protocol will go smoothly. If this is not the case, we will likely see a decline in Ethereum, all assets that depend on it, and beyond that, the entire market.
Therefore, we are still in a period of uncertainty where caution is still needed. Uncertainty therefore hovers over traditional markets where a recession remains likely in the short term and in the future of one of the major players in the crypto-asset market, Ethereum.