Crypto Assets: The Summer of All Dangers

Blockchain Chronicle. The topic that gets the most attention is the Merge, a new version of the Ethereum protocol with two major changes in how it works.


The crypto asset market experienced an unexpected rebound in the month of July. In the first six months of the year, the total valuation was halved from $3 trillion to $1 trillion. This is not a new phenomenon, as far as the volatility of this market is known, and such declines have occurred several times.

The usual skeptics have, of course, announced the final death of the crypto asset market, which is based on no tangible value, comparing it to a giant Ponzi market. This is not the case and the underlying technology has once again proven its robustness and the importance it can provide for increasingly varied economic activities.

The correlation between the crypto asset market and the Nasdaq remains very high and since mid-July there has been a simultaneous uptick. Some positives came to reassure US investors, notably the unemployment figures and the decline in commodity prices, primarily oil.

However, it must be taken into account that the volumes are falling sharply compared to, for example, the month of June, with a large number of professional players on holiday. The current bullish move is therefore potentially vulnerable and could turn quickly.

As for the indicators inherent in the crypto ecosystem, there are two essential points to note. First, the first half of 2022 was heavily 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 caused the market to panic in May and June.

These problems now appear to have stabilized, and it is expected that companies using the same models will be happy to learn from them.

But the topic that is getting the most attention from the market is the Merge, a new version of the Ethereum protocol that should see the light of day in mid-September, with two major changes in how it works: the move to proof-of-stake and a sharp decline 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 drop by 99%, prompting players who had chosen other blockchains for the development of their projects to use Ethereum, even today a leader in smart contract, platforms to rethink.

A consequence of the move to proof-of-stake will be a sharp drop in the creation of new Ethereum units. Thus, the asset should become more deflationary than Bitcoin, known for its limit of 21 million units. This continued decline in supply, coupled with demand that remains significant in valuation for the second asset, could cause a price increase in the long run.

The assets that performed best in the month of July are therefore of course Ethereum and the tokens that depend on the blockchain, especially all those that offer decentralized financial services. Most players are therefore confident that the migration to the new protocol will go smoothly. If this were not the case, we will likely see a deluge of Ethereum, of all the assets that depend on it, and beyond the entire market.

We are therefore still in a period of uncertainty in which caution is still warranted. There is therefore uncertainty surrounding the traditional markets where a near-term recession is likely to remain and the future of one of the key players in the crypto asset market, Ethereum.

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