Why Is Ethereum Dropping?
An Ethereum flash crash, an internet hoax, and something called Segregated Witness. What do they have in common? Simple. They all answer one question: “Why is Ethereum dropping?” But it’s equally important to remember what question they don’t answer. Namely, “Is Ethereum a good investment?”
Separate these two questions in your mind, because they have nothing to do with each other.
We may know why the floor is falling out from underneath Ethereum prices, but the other question is significantly tougher to answer.
We know, for instance, that an Ethereum flash crash began when one investor sold off a ton of ETH tokens. This single move triggered a cascade of stop-loss orders and margin liquidations.
After that, it was a knock-on effect as each downward move set off another batch of “trip wires.”
Less than a week later, ETH is down 24.69%, from $320.00 to $241.00. The plunge is quite extraordinary, but it wasn’t entirely natural. There were other factors that played a role, including an internet hoax and the protocol known as Segregated Witness.
Let’s start with the hoax.
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The Internet Strikes Again
Unlike Bitcoin, Ethereum’s founder is a well-known guy.
His name is Vitalik Buterin. As something of a prodigy, Buterin invented Ethereum at the age of 19. He also won a Thiel Fellowship (a $100,000 prize that billionaire Peter Thiel gives to kids to get them to drop out of university), which convinced him to pursue Ethereum full-time.
On June 25, a 4chan thread emerged claiming that Buterin was dead.
“Vitalik Buterin confirmed dead. Insiders unloading ETH,” the post read.
But it didn’t stop there.
“Fatal car crash. And now we have our answer,” the post continued. “He was the glue. It will be difficult for ETH to recover and the entire crypto sphere is in big trouble.” (Source: “Vitalik Buterin confirmed dead. Insiders unloading ETH.,” 4chan, June 25, 2017.)
If there was any bullishness after the Ethereum flash crash, it was burned to the ground.
Buterin posted a picture of himself to disprove the post, but many investors had already taken the bait. (Source: “Proof-of-Life: Vitalik Buterin Uses Ethereum to Disprove Death Hoax,” Coindesk, June 26, 2017.)
They started selling, and since no one wants to be the last one off a sinking ship, the trend-followers made for shore as well.
There’s no doubt that this saga drained some confidence in Ethereum. Markets will regain their common sense eventually, though, once Ethereum manifests enough use-cases for its platform.
Investors will pour back into the cryptocurrency when those applications and ICOs come online.
The “New York Agreement” Causes ETH/BTC Rotation
The third factor dragging ETH prices down is the “New York Agreement,” otherwise known as “SegWit 2x.” These are actually Bitcoin protocols that will impact the BTC price prediction, agreed upon at a recent New York summit.
Hence the name.
We could delve into the technical details, but the long and short of it is this: Bitcoin needs to increase its transaction speed.
Also Read: How to Invest in Bitcoin
As it stands, Bitcoin takes a long time to transfer because there is a massive backlog. But there’s apparently a way to solve this problem. You see, the original issue is due to an arbitrary piece of Bitcoin’s original software.
Satoshi Nakomoto, the shady inventor of Bitcoin, decided to place a constraint on block sizes, which limits the amount of data that is transferable at one time. Whatever his intention, it has caused severe problems in scaling up the platform.
However, SegWit will squeeze more data into each block, thus increasing the processing power of Bitcoin’s platform. For a while, there was infighting among the Bitcoin community; opinions were split on whether SegWit was the answer.
Those disagreements have largely been settled. SegWit is now moving forward with tremendous popularity, stoking optimism on the value of Bitcoin.
When you lay this fresh optimism on Bitcoin next to the bearishness on Ethereum, an ETH-to-BTC rotation begins to play out. Money appears to be flowing out of the former and into the latter. Perhaps it is also because we saw an Ethereum backlog recently.
Investors had assumed that Ethereum was going to avoid the pitfalls that plagued Bitcoin, but it was not to be. The cryptocurrency also ran into scaling issues. However, it does not have an arbitrary limit on block sizes, so we should see ETH prices recover quite soon.
Conclusion: Is Ethereum a Good Investment?
I certainly think that Ethereum offers more upside than Bitcoin. Not only is it more flexible, but it is less ideological.
Bitcoin wants to destroy central banks and conquer money. To this end, it pioneered blockchain technology and decentralized ledgers. Ethereum took that idea and ran with it. It expanded the application of blockchain technology to everything else, making it a more valuable platform.
It can simply do more things.
The only reason it is having such a bad month is because of the Ethereum flash crash, Buterin’s fake death, and the New York Agreement.