Billionaire investor Warren Buffett is famous for being fearful when others are greedy and greedy when others are fearful. While he may be a stock market guy, the same strategy could be applied to cryptocurrencies, even if Buffett is no fan of bitcoin.
Investors have been fearful of late, with the broader cryptocurrency market cap shrinking from $2.8 trillion in November to below $2 trillion today. Even the pack leaders have not gone unscathed, including Ethereum, the second-biggest coin by market cap. It appears that not too many crypto investors are heeding Buffett’s advice to be greedy and capitalize on the market downdraft.
The Ethereum price is barely holding onto the $3,000 level after crossing the $4,400 level in October 2021 and setting a fresh all-time high at the time. The Ethereum Fear and Greed Index, which measures market sentiment, is currently flashing fear at a reading of 26, indicating that investors are shaking in their boots. Fear has been the dominant emotion for a while. Investors have not felt greed around the Ethereum price since November when the index was hovering at 64. Crypto prices are nothing if not volatile, and several catalysts could potentially see the Ethereum price sentiment meter flip from fear to greed on a dime. Nevertheless, several rival blockchains on Ethereum’s coattails are looking to capitalize on the smart-contract leader’s weaknesses and take market share.
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The Ethereum price in the past year has been primarily fueled by the rise of decentralized finance (DeFi) and NFTs, two white-hot market segments that are ushering more users into crypto. For its part, DeFi refers to a disruptive technology in which no middle man is required to complete financial transactions, cutting right into the heart of banking activities like lending and borrowing, among other activities. This is thanks to smart contracts, agreements that are automatically executed on the blockchain when certain conditions are met. In the DeFi market, the total value locked (TVL) currently hovers at $232 billion, according to DeFi Llama. Approximately $145.5 billion has been deposited onto the Ethereum blockchain.
Ethereum is also a key beneficiary of NFTs, which helped define pop culture in 2021. NFTs are considered a status symbol on social media platforms, where they often take the form of digital avatars. These digital collectibles built on Ethereum each have their unique identifier tied to an address on the blockchain, giving users the ability to verify an NFT’s authenticity. Famous athletes like Steph Curry and celebrities, including Jimmy Fallon, have jumped onto the NFT bandwagon, drawing attention to the space and shining a spotlight on the large sums of money people are willing to fork over for these items. NFTs can run into the hundreds of thousands or even millions of dollars, often priced in ETH, strengthening the use case for Ethereum.
Yet whether Ethereum can continue to hold this crown is up for debate. The Ethereum network itself has generally been dependable for users, not least thanks to the thousands of developers who are dedicated to making the blockchain run mostly smoothly, a few chinks in the armor notwithstanding. According to Electric Capital, the Ethereum network boasts more than 4,000 “monthly active open source developers” building on the blockchain. This compares to fewer than 700 developers working on the Bitcoin blockchain each month.
For all its benefits, Ethereum has its pain points too, not least of which include high fees and slow transaction times, neither of which have helped the Ethereum price lately. Ethereum addresses these issues with the ongoing transition to Eth 2.0, designed to make transactions cheaper and faster. That upgrade, which involves a change to what’s known as a proof-of-stake (POS) consensus algorithm, is expected to be complete this year. In the meantime, competitors appeal to users’ frustrations with speedy and cheaper options.
Aside from legacy apps that are only there, not sure why people use ethereum $eth anymore. Just a hassle, too expensive, and slow moving. Totally a turn off to corporate use cases too. $avax Avalanche way better. Cost me $0.47 to restake and under 10 seconds. Enough excuses. 🔺— WPark 2.0 ⬡🔺 (@WPark77) January 9, 2022
Here’s a list of a few rival blockchains to Ethereum that have been taking market share in areas like DeFi and NFTs:
- Solana (SOL)
- Avalanche (AVAX)
- Terra (LUNA)
- Binance Smart Chain (BNB)
No blockchain is perfect. In the new year so far, several outages have plagued major blockchains and platforms, dealing a blow to users who were unable to complete transactions. In addition to outages on Solana and Polygon/Matic, one of the outages involved Ethereum-based Arbitrum, a Layer 2 solution designed to improve the network for decentralized apps (Dapps). As the space matures, these blockchains will likely work out the kinks.
Ethereum Price Bulls vs. Bears
While the Ethereum price remains in the doldrums, there are plenty of market bulls who believe that there’s plenty of runway for gains ahead. Joey Krug is CIO of Pantera Capital, a digital asset and blockchain investment firm that counts Ethereum as one of its major investments. Krug isn’t worried about Ethereum’s competition, suggesting that their compromises to outperform Ethereum today will eventually be their weakness, causing them to rely on their larger rival as a base chain to survive.
He is cited by a Bloomberg article saying that in the coming decade or two, upwards of 50% of financial transactions will involve the Ethereum network, which would thrust ether, the native cryptocurrency of the Ethereum blockchain, even further into the limelight.
One of the most bullish Ethereum forecasts, by Twitter account “The Moon Carl,” suggests that the Ethereum price reaching $5,000 per coin “is inevitable.” Investors who agree with him will be able to buy ETH at a bargain, considering the Ethereum price is currently trading nearly 40% below its peak reached in 2021.
Not everyone is as bullish about the Ethereum price. Wall Street bank JPMorgan issued a warning signal, suggesting that competitors could dethrone Ethereum in the time that it takes to solve the network’s issues. The analysts suggest that Ethereum’s pain has been rival networks’ gain, wreaking havoc on the Ethereum price. JPMorgan identifies four potential “Ethereum killers” that threaten to shake things up:
- Solana, which can handle 50,000 transactions per second (TPS) vs. Ethereum’s current rate of 14-45 TPS
- Cardano is expanding into Ethereum’s sweet spot of smart contracts and, according to JPMorgan, has greater scalability than its rival.
- Polkadot, which Ethereum touts for its interoperability. Vitalik Buterin, the co-founder of Ethereum, recently explained why he believes “the future will be multi-chain, but it will not be cross-chain,” the latter of which is where multiple blockchains interact with one another for the transfer of tokens or data through bridges.
My argument for why the future will be *multi-chain*, but it will not be *cross-chain*: there are fundamental limits to the security of bridges that hop across multiple "zones of sovereignty". From https://t.co/3g1GUvuA3A: pic.twitter.com/tEYz8vb59b— vitalik.eth (@VitalikButerin) January 7, 2022
Ethereum Price Verdict
Even if JPMorgan is correct and an Ethereum killer is successful, it’s not going to happen overnight. In the meantime, while the Ethereum price and the broader cryptocurrency market are stuck in a rut, developers can keep their noses down and build without all the fanfare around the markets. If history is any indication, it’s another market cycle that will turn from fear to greed soon enough.
This article originally appeared on Wealth of Geeks and has been republished with permission.