Ethereum (ETH), the second largest cryptocurrency after Bitcoin, has been on a roller coaster this week. After hitting an all-time high of $422 on September 20, it is predicted that the ETH price will crash to a low of $224 on September 29. And now it’s sitting at around $240, with some analysts predicting that the worst is not yet over. Paragon (PRG), an Ethereum-based project, has gotten so bad that it announced that it would buy back its tokens “at a discount” because of the dip in ETH and BTC prices. There are many reasons for this crash, probably related to growing pains rather than anything nefarious or sinister. Following is our take on why the Ethereum price has crashed and how it can be rescued.
Ethereum is still a fledgling platform
Ethereum has been around for over three years now, and most people have come to associate it with ICOs and tokens. But it is important to remember that Ethereum is a platform that runs smart contracts. While the transactional volume on the blockchain has been increasing steadily, it is nowhere near the capacity levels for which the platform was designed. The platform’s scalability issues have been well documented, and many experts have pointed out that the only viable solution for these issues is to increase the gas limit. While the platform’s core functionality has not changed since the ICO, the focus has shifted toward the ICO frenzy. This has led to the creation of thousands of decentralized applications (dapps) that are trying to ride the wave of investor interest in the space. Whether or not this is a sustainable trend is anybody’s guess. And the outcome of this ride will determine the future of Ethereum as a platform. If these services are unnecessary or plagued by scalability issues and other bugs, they will end up discrediting the Ethereum platform. This could adversely affect the value of ETH in the long term.
Ether DApps have not caught on just yet
Ethereum is often referred to as “the world computer” because of its sheer power. DApps built on top of the Ethereum blockchain are capable of things that computers in our daily lives cannot do. This is because a decentralized application does not depend on a centralized system for processing. Instead, it uses the computer’s combined processing power on the blockchain network. All this power requires a considerable amount of computing effort and electricity. And at the moment, the Ethereum blockchain cannot sustain this level of activity. The blockchain’s processing power is measured in two ways: the number of transactions processed per second (TPS) and the amount of gas consumed per transaction. We can see that Ethereum can currently process a maximum of 25 TPS at the moment. However, the network’s gas limit is 6.7 million and growing. This is one of the reasons why dapps have not caught on just yet. DApps are resource-intensive, and Ethereum does not have enough gas to accommodate them.
The growing popularity of alternative cryptocurrencies
There has been a lot of excitement in the cryptocurrency space recently. This has led to massive growth in alternative cryptocurrencies like Bitcoin Cash, EOS, Cardano, and TRON. But these are just the tip of the iceberg, and other altcoins like VeChain and Ontology are also gaining traction. Investors previously interested in ETH have shifted their attention to these new coins. This has led to a general decline in interest in ETH. Although many of these alternative cryptocurrencies will fade into obscurity, there’s no denying that they are becoming increasingly popular. It would not be brilliant to assume that this trend will end soon and that Ethereum will return to its glory days. The best way to recover from this situation is to ensure that Ethereum is a better product than its competition. This can be achieved by addressing scalability issues and ironing out other bugs.
Institutional investors are shying away from Bitcoin
The recent meltdown in the crypto market has spooked institutional investors. This is because it is all about the bottom line for them. And the massive loss that they incurred following the recent crash has put them off investing in cryptocurrencies for the time being. There are several reasons why institutional investors are shying away from Bitcoin. The biggest one is that there are no real-world use cases for the coin. The entire value of Bitcoin is derived from speculation and nothing else. There is no way to use the blockchain to get anything done. So when the price of the coin drops, there are no real-world assets to offset the losses. This has led to a situation where thousands of people have lost millions of dollars investing in Bitcoin.
Ethereum is currently going through growing pains. These are expected in a young industry that is growing exponentially. There are many reasons for the current crash. These include the shift in investor attention to new coins, the lack of real-world use cases for Bitcoin, and the fact that institutional investors are shying away from the space. If Ethereum can turn these challenges into opportunities, it can emerge as a more robust, more capable platform in the future.