The Price of Ethereum Continues to Dip – What Will Rally Investors?

 

The merge has long been on the lips of Ethereum investors. Deemed the answer to cryptocurrency’s mining dilemma, it was due to shake up the market and put Ethereum ahead as the ultimate digital finance leader in as little as a decade. 

With the merge recently completed, however, Ethereum 2.0 has a long teething period ahead of it. This is where the proof-of-stake (PoS) system will be allowed to find its legs, and the existing users will have the chance to grow comfortable in the network. 

For the creator, Vitalik Buterin, it was hoped that this would be a smooth process, but since the merge was actualised in September 2022, Ethereum’s value has been dropping further than expected. Within one month, the price of Ethereum has dropped by nearly 15%, which, in turn, has caused a domino effect on previously steadfast investors; the more Ethereum falls, the more investors jump ship. 

What Is The Merge?

As mentioned previously, the merge has been a common topic amongst the crypto community for years now. This is a system overhaul which, most notably, will change Ethereum from a proof-of-work (PoW) network to PoS.

The concept is supposed to make Ethereum far more sustainable and efficient, especially in comparison to its rival, Bitcoin, which has no plans to make the switch. Proof of work essentially pits users of Bitcoin against each other, calculating a code in order to validate a block and create the next one. 

The winner receives BTC as a reward, and the process starts all over again. For PoS, however, blocks are validated by a staker - a user who has deposited 32 ETH into the system - and picked at random to validate. This is proven to involve far less computer usage, which drastically lowers power consumption and is far more sustainable as a result.

What’s Gone Wrong?

Despite the fact the merge has lowered Ethereum’s consumption by as much as 99.95%, things aren’t exactly perfect. As mentioned before, a teething period was always to be expected, but the tax confusion and leap-frogging investors were not exactly accounted for. 

After Ethereum’s merge was completed, a knock-on effect was felt in the United Kingdom. This involved a report which stated that the UK staking users (who are staking their tokens to help validate transactions and gain rewards) are not going to be aware of what to report and pay to the government. With the majority of British citizens exempted from filing yearly returns, many might be unaware of what they must submit, especially if the HMRC follows its current guidelines (which would mean stakers in the UK will have to pay a 45%  income tax on staked earnings).

Of course, this has led to worldwide concern and confusion, which has led investors to stray. Many of said investors will also have been miners in the previous Ethereum system, which makes it far easier to jump ship to a network like Bitcoin, especially when the price of Bitcoin is already far higher than Ethereum at the present time. With these investors moving over to a tried-and-tested network, it has led others to follow suit (as is often the case in cryptocurrency when a sudden movement occurs), meaning Ethereum has seen a far more intense price drop simply due to the complexity of its launch and the uncertainty that it brings.

How Can Things Go Right?

It is important, however, that Ethereum can see this through. In the grand scheme of things, Ethereum’s POS launch is a groundbreaking moment in the history of cryptocurrency, especially as it has a status as the second most popular coin in the market. With the sustainability of POS, as well as the efficiency and innovation of the sharding strategy, Ethereum has every chance of appealing to the wider public while also convincing government and banking institutions of its superiority over regular fiat currency.

In many ways, it can be argued that, in order for cryptocurrency to survive as a concept, the merge has to work. It’s unrealistic to expect crypto to take over from traditional finance if there is no competition for Bitcoin and, as a network, Ethereum offers far more in the context of the incoming integration of Web3. In terms of rallying investors and building up its price, that is where the hope lies. 

With the ability to create smart contracts and build dApps (decentralised applications), Ethereum has steadily been creating its own ecosystem of creators, all of which will have a part to play when Web3 becomes a reality. If the internet is truly going to become decentralised, then Ethereum’s blockchain will undoubtedly be at the forefront if it survives this moment. In this way, a push to introduce more smart contracts and build the ecosystem further will be the most effective when it comes to rallying investors. While it may not happen right now, Ethereum needs to keep focused on its ability and potential as a network so that, when the fog eventually clears, investors can be called to arms and the price can soar in the way it has been predicted to.

FAQ’s

When Will The Tax Confusion Be Cleared Up?

As of right now, it’s unclear when the tax confusion will be cleared up. Around the world, governments are still scratching their heads about cryptocurrency in general, let alone a new staking tax concept. With this being said, now the merge has happened, it will hopefully be clarified sooner rather than later.

Is POS Not As Reliable As People Thought?

Proof-of-stake is still a reliable concept that’s been tested on other networks. This is just the first time a network as big as Ethereum has switched. It’s likely that the reasons investors are leaving are mainly down to other issues, including the familiar nature of mining and BTC's relatively higher price. 

Will The Price Drop Even Further?

With the cryptocurrency market being so volatile, it is hard to predict how low ETH is going to fall. It could get worse before it gets better, but experts still predict a rise is on the horizon.

Will Ethereum Still Overtake Bitcoin?

This is up for debate. While experts have predicted ETH will surpass BTC by around 2030, no one knows for definite. A constant eye will need to be left on the market at all times in order to understand exactly where ETH is going.

Invest In Ethereum, Yes Or No?

This is down to the circumstances of the investor. If the problems with the merge are sorted, however, then Ethereum still has the potential to become a dominant network on the blockchain. This would make it a wise investment at this stage, especially while the price is low.