The gods have not been very kind to crypto last month or so. Most of the cryptocurrencies are down 50% from their high prices of April and May. Many people are starting to write off cryptocurrencies in general, again. A lot of people who entered into crypto-land this year might have had very poor experiences and some have probably lost a lot of money as well. So it is natural to ask: is crypto dead? I don’t think so and the rest of the blog tries to answer why. Of course, I am no financial advisor so it is possible that we have seen the best days and it’s all downhill from here. I personally don’t think that is the case.

Why is the crypto market down?

• China: China has been cracking down on crypto in the last few months. They have especially started to ban bitcoin mining as it is energy intensive. With the nearing launch of eCNY (China’s own central bank digital currency), it is now starting to enforce no crypto handling by chinese banks and pushing away any illegal exchanges still operating in China.
• Regulations: Many countries are looking to start enforcing regulations (including China) against crypto given how big it has become over the last few months. The regulatory uncertainty combined with negative comments by various government officials across the world seems to be another factor.
• Elon Musk: Elon Musk’s tweets are another factor creating uncertainty. His tweets on BTC and DOGE seem to be a major driver in those markets. It’s hard to say if he is in favor of or against crypto anymore.
• Energy consumption: There’s a growing negative sentiment around Bitcoin’s energy consumption and in general around the Proof of work (PoW) algorithms based crypto.
• Speed of ascent: Almost anyone who bought BTC before Jan 2021 (5 months ago) is sitting in profits. BTC has 10x’ed in about 1 year and at it’s peak of 65K had almost 15-20x’ed in less than 15 months. There’s a lot of people who are taking profits as well, so the speed of ascent has (IMO) contributed to the speed of descent.
• Stock Market volatility: The broader stock market has been very volatile and there are a lot on fears around inflation. I am guessing some of that is also impacting crypto markets.
• Reopening: (IMO) As more people in western worlds are able to go out and spend money on other things, they are spending less time and money trading crypto-currencies (or stocks). So the volumes have also gone down and I wonder if that’s also a cause of prices staying flat or down.

What has not changed for ETH?

• DeFi: New products are being built and existing ones are still developing, upgrading and improving. There is real value being generated in DeFi world which is why we have seen more than US $50B being locked in various DeFi protocols and products and this number is only increasing. As more complex financial products get built, the value proposition of DeFi will continue to increase.
• NFTs: While the short term bubble of NFT art seems to have popped, the use of NFT technology has been validated in various situations. I expect that usage of NFTs as tickets, as art, as music streaming tokens etc will continue to increase as there is real value being generated by the technology.
• ETH2 / PoS: Ethereum developer community is continuing to work on the PoS upgrade. The ground work has been laid and each new Ethereum release gets us closer to the eventual migration. With the upgrade likely to happen in next 6-12 months, it will help with energy narrative and allow more Ether to be locked in by validators.
• Scaling: Layer 2 solutions are already here and being adopted while Layer 1 scaling will come with the ETH2 upgrade. There is a clear roadmap of ethereum scaling by 100x or more in next 12-18 months. That scale will be necessary for the Ethereum infrastructure to support the increasing volume and usage of the blockchain.
• EIP-1559 / Deflation: With upcoming launch of EIP-1559 in July (most likely), there will be improvements in how you pay for transaction fees and possibly some of these fees resulting in ETH being burnt (removed from supply). This can lead to a high deflationary pressure on Ethereum which will possibly make the ETH token more valuable.
• Increasing institutional adoption and awareness: Every week, we are still hearing and reading news articles about some institution adopting or increasing usage of Ethereum based solutions. In the last few months, more institutions have entered Ethereum financial markets, started getting involved in DeFi, planning to use Ethereum as settlement layer etc. I expect that we are starting to hit the exponential upward part of the S curve and we should continue to see more people adopt the technology irrespective of the short term prices.

So what happens next

While in the short term, there will be uncertainty and a lot of unknowns, risks, and volatility; it is clear that we are still in the upward trend on increasing adoption of blockchain technologies (especially Ethereum). If the technology can drive clear value proposition, it will continue to be adopted and thus generate even better network effects. All of this taken together, makes me believe that we will see another 10x on some key projects like Ethereum – though I expect that to happen over next 5-10 years and not in 1 month.

By buying stock of Apple, or Microsoft, or Amazon; we generally bet on the future of such companies. It is not a given that the price will keep on increasing but we buy because we believe these companies provide valuable services and in the long term, it is hard to see how people will stop using Apple or Microsoft products. I feel that the ETH token presents the same opportunities by allowing you to buy into the future of Ethereum ecosystem. For me, it is hard to imagine a future where Ethereum as a technology will not play an important part.