Crypto Cycles and Ethereum's Evolution: A Dive into the Cryptocurrency Market Dynamics
Summary:
The article provides a detailed account of the cyclical patterns in cryptocurrency market, including price increases, downturns, and 'crypto winters.' It particularly focuses on the period of January 2018 to December 2020, detailing the significant crypto crash in September 2018, various regulatory concerns, aftermath of the crash, and the revitalization period in 2019. The article also highlights Ethereum's switch to the proof-of-stake system, delays faced, and its mainstream recognition and growth in the decentralized finance ecosystem in 2019. Other related aspects such as tokenization of contracts, rewards program, issuance of collectible tokens, and Samsung's Ethereum-focused initiatives are mentioned.
The digital currency market has seen repetitive cycles of rapid ascend in prices called 'bull runs', followed by prolonged dropdowns, known as "crypto winters." 'Crypto winter' is a term used to define a period of decreased investor enthusiasm in the digital currency market, as significant drops are observed in the prices and transaction volumes of crypto assets from their all-time highs. Unlike the traditional capital market, there's no universal measure to track the beginning of a crypto winter in the digital currency sector.
A four-year cycle pattern has come to light where boom in Bitcoin's (BTC) price precedes the block reward halving. Post this halving, a visible drop usually takes place after the cryptocurrency reaches a new landmark in terms of price. The crypto winter, not being officially announced by a specific regulatory body or organization, is identified by a steady trend of falling prices over various digital currencies. This phase originated in January 2018 and continued till December 2020.
The Massive Collapse of September 2018
During this phase, Bitcoin and Ether (ETH), the two front-running digital currencies, saw a decrease of over 80% of value from their earlier height. Bitcoin had earlier touched a peak of around $20,000 towards the end of 2017 and Ether had risen to more than $1,400 before both saw a deep plummet in their value by September 2018. A vast majority of the top 100 enlisted cryptocurrencies, around 95%, recorded a substantial decline in their value.
Several inherent challenges in the industry triggered the 2018 crypto winter. These included exceptionally high failure rate of initial coin offerings with over 97% not achieving their goals, coupled with numerous individual investors being overly leveraged. Regulatory issue further worsened the scenario resulting in a mass withdrawal of investors from the market.
The aftermath of the 2018 crash had a lasting impact on the perception of digital currencies. Financial institutions started viewing the crypto market with cynicism, labelling it as possibly speculative, while worldwide governments counselled caution regarding crypto investments. This stagnant phase shifted gears in July 2019 when the price of Bitcoin went beyond the $10,000 mark once again due to a resurgence in investor enthusiasm.
But this upturn in market prosperity was short-lived. Global markets, including the digital currency market, faced a major liquidity crisis due to the outbreak of the COVID-19 pandemic in March 2020.
Ethereum's Road to PoS saw new plans and delays
Despite the significant downturn in 2018, the year also saw critical evolvement for Ethereum. During this period, Ethereum began setting the foundation for its shift to proof-of-stake (PoS) algorithm despite facing hurdles and having to reschedule.
In early 2018, network congestion was caused by the popularity of a blockchain-based game, CryptoKitties, emphasizing the need for Ethereum's scalability improvement. To address this, Ethereum investigated the concept of sharding that would divide the blockchain into smaller, manageable segments, referred to as shard chains or data layers, each operating independently. This approach allowed parallel information processing, thereby greatly enhancing the blockchain’s scalability.
However, Ethereum's transition to PoS blockchain was slower than initially projected, with multiple delays.
As per its 2017 roadmap, Ethereum had planned for major upgrades – Metropolis and Serenity – to boost scalability by introducing PoS and sharding. The Metropolis upgrade was to be rolled out in two phases: Byzantine, focused on privacy improvements, and Constantinople, which would introduce a hybrid system of proof-of-work+PoS. However, by June 2018, Ethereum dropped the hybrid approach in favour of a simpler PoS system, dubbed as Casper 2.0.
Despite being expected in 2019, this transition was only concluded in 2021, indicating the complexities involved in upgrading such a substantial and widely-used blockchain platform.
Ethereum grabbed the limelight in this period when United States Securities and Exchange Commission (SEC) categorized Ether as a non-security in June, only the second asset after Bitcoin to get such a designation and sparking debates in subsequent years.
2019: Mainstream Recognition and Emergence of DeFi
In 2019, Ethereum attracted significant attention owing to its technical advancements and growth in decentralised finance (DeFi) as an ecosystem. Over the year, the DeFi sector saw considerable expansion, with the total value locked in DeFi protocols shooting up to $667 million by December 31, 2019.
Initially dominated by MakerDAO, which held 1.86 million ETH (around $260.4 million in worth at the time), there was an influx of new participants by year's end. Decentralised Exchanges also saw substantial growth, gaining popularity amidst the prevalent fame of centralised exchanges. Uniswap rose as a crucial player, with its average daily trading volume rising from $25,000 to $1.5 million and the liquidity increasing from $500,000 to $25 million.
Meanwhile, Ethereum began to capture the attention from varied sectors, including big corporations, financial establishments, consumer brands and celebrities. Basketball player Spencer Dinwiddie announced an initiative to tokenize his NBA contract on Ethereum, creating 90 Ethereum-based tokens. These tokens provided holders the chance to invest in part of Dinwiddie's future contract earnings, including interest. Using this arrangement, Dinwiddie received $13.5 million upfront from his $34 million contract.
Professional basketball team, Sacramento Kings, introduced a rewards program using an Ethereum-based token to improve fan engagement via blockchain technology. Meanwhile, entertainment giant Star Trek announced it would issue a series of collectible ships as nonfungible tokens on Ethereum, exploiting the platform for digital collectibles.
Also, Samsung unveiled a developer platform centered on Ethereum and announced a new smartphone equipped with an integrated Ethereum wallet.
Published At
4/5/2024 4:15:00 PM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.