Crypto-actives: the summer of all dangers

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

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The cryptocurrency market experienced an unexpected recovery during the month of July. The first six months of the year saw the total valuation halve, from $ 3 trillion to $ 1 trillion. This is not a new phenomenon, as the volatility of this market is well known and such declines have already occurred on several occasions.

The usual skeptics have obviously announced the definitive death of the cryptocurrency market, which is not based on any tangible value, and compare it to a giant Ponzi market. This is not the case, and the underlying technology has once again demonstrated its solidity and the interest it can reserve for increasingly varied economic activities.

The correlation between the cryptocurrency market and the Nasdaq remains very high and there has been a concomitant awakening since mid-July. Some positive points came to reassure American investors, in particular the data on unemployment and the drop in prices of raw materials, oil in the first place.

However, it should be considered that the volumes are very low compared to for example the month of June, with a large number of professional players on vacation. The current bullish movement is therefore potentially fragile and could quickly reverse.

As for the indicators inherent in the crypto ecosystem, there are two essential points to note. First of all, the first half of 2022 was strongly marked by the failure of several major market players, starting with the Terra project, which led to the downfall of credit and investment platforms such as Celsius and Three Arrows Capital. These failures put the market in a state of panic during the months of May and June.

These problems now seem to have stabilized and it’s safe to bet that companies operating on the same models will be eager to learn the lessons.

But the topic that attracts the most attention of the market is Merge, a new version of the Ethereum protocol that should see the light in mid-September, with two big changes in the way 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 above all an environmental issue: the electricity consumption of the Ethereum protocol should decrease by 99%, and push players who had chosen other blockchains for the development of their projects to reconsider Ethereum, still a leader in smart contract platforms. .

A consequence of the move to proof of stake will be a sharp drop in the creation of new Ethereum units. The asset should therefore become more deflationary than Bitcoin, which is known for its limit set at 21 million units. This sustained decrease in supply, coupled with demand that remains significant for the second asset in terms of valuation, could cause a long-term price increase.

The assets that recorded the best performance in July are therefore of course Ethereum and the tokens that depend on its blockchain, in particular all those that offer decentralized finance services. Most players are therefore confident that the migration to the new protocol will go smoothly. If not, we will probably see a collapse of Ethereum, of all the assets that depend on it, and beyond, of the entire market.

We are therefore still in a period of uncertainty where caution is still needed. Uncertainty therefore hovers over traditional markets where a recession remains likely in the short term and over the future of one of the main players in the cryptocurrency market, Ethereum.

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