Towards the beginning of 2018, Ethereum has recorded massive gains and all-time highs. At one point on January 13, Ethereum prices reached the $1,420 level, before tumbling down to the multi-wave correction up to this point.
The “Flippening” Flipped?
The interesting thing was that during Bitcoin’s massive price pullback, Ethereum held its ground well. ETH prices lost less value in terms of percentage in comparison to Bitcoin’s bear run. Bitcoin was basically losing at a faster rate. In fact, many crypto analysts and commentators even talked about the “flippening” happening.
In a CNBC article last January, it states that “Ethereum co-creator Steven Nerayoff says increased projects built on the cryptocurrency could trigger a “flippening” in 2018, in which Ethereum overtakes Bitcoin.”
However, looking at the Ethereum price action in the last 3 months, we can see that this “flippening” has pretty much flipped on its behind. As of the time of writing, Ethereum prices hover around the $540 level.
The big question is this: Why is Ethereum losing ground?
Looking at the RSI indicator of Ethereum, we see that it has more often been oversold in the last 3 months. This gives us an insight of the market’s current perception of Ethereum. In general, being oversold on the RSI indicates that many investors are pulling out their capital on Ethereum. We find two particular reasons that may be affecting this: the Ethereum blockchain projects and the mining difficulty.
Ethereum Blockchain Projects
The Ethereum blockchain is arguably the best blockchain for projects and ICOs. Essentially, the Ethereum blockchain provides developers with an easier way of creating tokens and funding projects. By creating a token, blockchain projects source capital through crowd funding. This feature gives Ethereum an edge over the other blockchains. Although this feature provides so much convenience for project developers in terms of smart contracts facilitation and crowd funding, it has also potentially created a counterproductive consequence for Ethereum prices.
The threat comes from the large amounts of Ethereum acquired by project developers through token sales. Some of the blockchain projects in the Ethereum blockchain, like EOS, market themselves as a direct competitor of Ethereum. As of the moment, EOS has acquired around $270 million worth of Ethereum through its funding method. In theory, EOS can dump its Ethereum holdings in the market and buy their own token, which will tank Ethereum prices lower and push EOS prices higher.
This is potentially devastating. The scary thing is that the potentials are being realized. On March 18, Twitter user @claptrapxl, a person involved in Blockchain, tracked massive movements made by EOS amounting to 417,000 Ethereum, of which 163,000 ETH ended up on Bitfinex. There is no proof of direct impact on the prices, but this idea of projects dumping ETH in order to pump their own token prices is particularly concerning.
The difficulty in mining Ethereum and the hash rates are steadily increasing since November, while the block reward has decreased from 5 ETH to 3 ETH. As a result, the profitability of mining Ethereum has also decreased. The increase in difficulty and decrease in profitability have influenced the market’s perception of Ethereum.
While I personally remain bullish on Ethereum and Bitcoin because of their potentials in future practical application, the current market sentiment is bearish. For those who are new to crypto, this may be a scary thing to witness. For the more serious investors, this may be a great buy in opportunity.
“The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of cryptonewsbytes.com. This article is not intended to provide any investment advice and should not be taken as is. Please perform your own research before investing in any cryptocurrency.”