When the crypto year 2022 dawned on January 1st, the stage seemed set for Ethereum (ETH) to put on a gala show: ETH was trading at just under $3,700. However, the final tally now at the end of December is sobering from an investor’s perspective: over the past twelve months, Ethereum’s price curve has recorded a drop of 70 percent and is currently bobbling along at around $1,200.
How did it come to this and what speaks for a successful future of Ethereum? Find out with our companion app and read other important business news.
Ethereum’s price decline in 2022 – trend setting failed
The price of ETH was able to break away from the trends in the overall market for short intervals at best throughout 2022. When the ecosystem around Terra (LUNA) along with algorithmic stablecoin UST collapsed like a house of cards in May, the shockwaves hit Ethereum, especially in the important Decentralized Finance (DeFi) division. ETH sets the tone there, and the loss of trust caused by Terra rippled through Ethereum.
By mid-June 2022, Ethereum was thus struggling to avoid falling below the psychologically important $1,000 mark. A major factor in the price decline: to accomplish Ethereum’s long-prepared protocol change through “The Merge,” it had been possible to make ETH available for staking in a closed environment since the end of 2020, thus earning attractive interest rates. But turmoil in the market and uncertainty around the launch date for “The Merge” caused even the targeted 1:1 peg of Lido Staked Ethereum (stETH) to ETH to wobble and nervousness spread.
“The Merge” makes Ethereum future-proof
Then, when September was set for “The Merge” in July 2022 after some delays, Ethereum recovered some previous losses. After all, “The Merge” was supposed to mark a groundbreaking event for Ethereum. Until then, the second largest global cryptocurrency ETH had technologically relied on Proof-of-Work (PoW) as its protocol, just like the lead cryptocurrency Bitcoin (BTC).
With “The Merge,” Ethereum switched away from PoW, which has been criticized as an energy-hungry protocol and had also long reached capacity limits with ETH. Since September 15th, 2022, Ethereum has now been based on the modern Proof-of-Stake protocol, “The Merge” ultimately went smoothly. But in terms of price, this fundamental technological progress was obviously already priced in for ETH.
FTX bankruptcy does not leave ETH cold
Thus, Ethereum had nothing to counter the second major bankruptcy of the crypto year 2022. When the crypto exchange FTX had to file for bankruptcy in November, not only did the previously second-largest trading venue worldwide for Bitcoin and Co. disappear, but the domino effects continue, even into the DeFi division. In this negative trend, achievements linked to “The Merge” are lost in Ethereum, such as the heralded deflation.
Ethereum PoW (ETHW) remains a footnote of 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 earlier version of ETH with proof-of-work as the protocol with Ethereum PoW (ETHW). Experts had already deemed this plan futile in advance, and ETHW crashed to a price below $3. But Ethereum PoW created confusion among inexperienced investors.
Is “Flippening” still realistic for Ethereum?
Medium- and long-term investors partly believe that Ethereum can overtake the number one Bitcoin in terms of market capitalization in the foreseeable future. Such a scenario is referred to as “flipping” in crypto jargon. The restructuring of ETH brought about by “The Merge” gave support to “flippening” theories – but only in theory.
In reality, in the crypto year 2022, the market shares of Bitcoin and Ethereum have barely shifted, with BTC occupying around 40 percent of the capitalization of the overall market and ETH coming in at just under 20 percent. At least in turbulent times, investors continue to prefer relying on Bitcoin as the rock, Ethereum remains the “digital silver”.
Conclusion: Ethereum must factor in special effects in 2023
If not for the Terra and FTX crashes that dominated crypto in 2022, Ethereum would be doing brilliantly – or so many ETH supporters express. But arguments in the subjunctive are not worth money, and Ethereum’s disappointing price curve speaks for itself. “The Merge” was nonetheless groundbreaking and provided proof that Ethereum is technologically reformable. In 2023, the path towards Ethereum 2.0 will continue and the first foreseeable stop will be the “Shanghai” update currently targeted for March. This will make it possible to withdraw ETH from staking as well. This affects around 13 percent of the total holdings of all Ethereum and therefore has the potential to negatively impact the price curve of ETH through sell-offs.
Thus, there is much to suggest that Ethereum will continue to struggle to spark its own momentum in 2023. But current ETH price levels may well represent good entry prices – if you take the Ethereum all-time high of almost USD 5,000 from November 2021 as a benchmark.
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First published in BLOCK-BUILDERS.DE, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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