Ethereum Price New Low? What Happens When Bitcoin Switch to POS?
TL; DR
Since the beginning of the year ETH has had a 36% year-to-date price increase.
On 20 September the ETH price attained its lowest point against Bitcoin within the last 14 months
Crypto regulation, decrease in level of competition and approval of ETH ETFs may push the Ethereum price up
Introduction
The relationships among the values of different assets within the same category such as cryptocurrencies can give us indication of how the market is evolving and the measures we can take as investors or businesses.
Today, we look at the relationship between bitcoin and Ether (ETH). We will also explore the possibility of the bitcoin blockchain to switch from the proof-of-work consensus mechanism to the proof-of-stake one.
ETH Hits 36% Year-to-date Price Increase
Before we look at the relationship between the values of BTC and ETH lets cover the recent and current ETH price movements. ETH has experienced a 36% year-to-date price increase so far in 2023 in terms of the United States dollar.
Comparatively, this is a decent price performance considering that Ethereum is trading at about 66% lower than its all-time-high it attained in November 2022.The all-time-high for Ether price is $4,870.
ETH vs. Bitcoin Price Comparison
We can also gauge the performance of the ETH market by making an analysis of Ethereum vs. bitcoin price changes. On 20 September ETH price reached its lowest point against bitcoin within the last 14 months when it fell below the 0.06 BTC support level.
However, the cryptocurrency market is unaware of the exact causes of such an Ethereum price fall. The following graph indicates the Ethereum vs. Bitcoin price analysis.
ETH vs. Bitcoin Price Comparison - TradingView
As the above picture shows the value of ETH against bitcoin has been dropping since October 2022. However, as we can see the situation has reached a critical point as the ETH value recently crossed below the 0.060 BTC support level, something that has forced the cryptocurrency market to question the real causes of Ethereum price’s current trend.
The sad reality is that the current ETH price drop comes on the backdrop of various infrastructural changes on the blockchain which the ETH market had anticipated would result in the coin’s rally.
One of the key developments on the blockchain was Ethereum’s transition from the proof-of-work consensus mechanism to the proof of stake one which occurred in September 2022.
Basically, the ETH market had envisioned that the upgrade could create a bullish momentum that could push Ether price above $10,000. This is because the upgrade reduced the issuance rate of ETH.
In mid-September 2022 the Ethereum development team announced that the ETH issuance rate had decreased to 0.25 of the supply.
The other notable Ethereum network development was the launch of Shapella Upgrade on 12 April 2023 which allows miners to withdraw their staked ETH from the native staking protocol.
The Shapella upgrade addressed one key concern of Ethereum investors. Previously, the ETH investors were worried that they had to stake their coins indefinitely. Nevertheless, this hurdle was removed when the blockchain launched the Shapella upgrade which has enabled Ethereum investors to withdraw their staked ETH.
After that significant network milestone, the ETH market expected a sustained Ethereum price increase. Sadly, things didn’t go as anticipated as its price started falling. For example, the ETH price fell to $1,850 a week after the Shapella upgrade.
There was something that was remarkable and unexpected too. The ETH market had anticipated to see an increase in net ETH withdrawal after the upgrade. However, the opposite was true. There was a surge in ethereum staking which resulted in a net inflow of 3.1 million ETH.
Since the expected Ethereum price increase has failed, the ethereum investors and the rest of the cryptocurrency market want to identify potential catalysts to reverse the Ethereum price drop experienced since April.
External Factors that May Trigger an Ethereum Price Rally
The ETH market is waiting for a catalyst to push the ethereum price up. The first possible catalyst is Ripple’s outright win over the U.S. Securities and Exchange Commission (SEC).
According to the SEC, Ripple is guilty of selling its token (XRP) to institutional investors without registering it. In July, though, Judge Analisa Torres declared that XRP is not a security when sold to retail investors on crypto exchanges.
Basically, ETH is facing a similar fate as Ripple, something which has disheartened ethereum investors. This is because ethereum sold its coin to institutional investors during its presale. Now, the market waits to see if the SEC will also target ETH the way it has done Ripple crypto (XRP). If both Ripple and ETH are cleared, that can act as a catalyst for an Ethereum price increase.
Regulatory Certainty in USA
Regulatory certainty in the United States and other leading economies may act as a catalyst for an ETH price surge. For instance, there is no regulatory clarity surrounding the Ether initial coin offering (ICO).
Incidentally, on 20 September the Ethereum network experienced the first movement associated with the ICO phase. In fact, 32.1 ETH acquired during the Ethereum initial coin offering (ICO) was transferred to Coinbase. Nonetheless, there is no incentive for similar Ethereum investors to move their ICO based ETH holdings to enhance liquidity in the market.
Positive Crypto Related News
Since the inception of decentralized currency in 2009 crypto news has had a big impact on prices of cryptocurrencies like ETH and bitcoin. Probably, the best piece of crypto news that can catalyse ethereum price increase is about crypto derivatives. For example, the approval of Ethereum exchange traded funds ETFs) may lead to ETH upward price surge.
Currently, the ETH market is awaiting the SEC’s approval of ETH ETFs. The approval of ETH ETFs will likely reduce the risk associated with the institutional concentration in BTC.
The other news that can positively impact Ethereum price relates to developments taking place on the blockchain. As an example, Canto, a layer-1 Cosmos-native blockchain’s announcement that it is expanding to the Ethereum blockchain may influence ETH’s upward price movement.
Canto, a zero-knowledge, permissionless rollup which is compatible with the Ethereum Virtual Machine will bring traditional finance into the Ethereum network.
The approval of bitcoin ETFs can also push the price of ETH up. This is because of the crypto market’s contagion effect. In some cases, ETH’s price movement may mirror that of bitcoin.
Low Threat from Rival Networks
If there is a decrease in threat from rival blockchains the Ethereum price may rise. A specific example is that of Solana and BNB Chain that are facing similar risks pertaining to ICO and securities laws. Since they have similar challenges they are less likely to challenge ETH’s market dominance.
ETH’s Proof-of-stake (POS) consensus mechanism
Earlier on we referred to the transition of Ethereum blockchain from the proof-of-work consensus mechanism to the proof-of-stake one. In simple terms, the proof-of-stake consensus mechanism is a decentralized that enables the network’s investors, who stake their tokens/coins, to verify transactions on the blockchain. Specifically, they need to validate transactions of the people who sell or buy Ethereum.
For example, Ethereum investors who have staked the minimum required ETH can verify transactions on the blockchain. This is different from the proof-of-work consensus mechanism which the bitcoin blockchain still uses. In this case, the miners should verify the transactions of individuals who sell or buy Bitcoin.
With POW the transaction validators, called miners, use their computational power to solve complex cryptographic equations. The major disadvantage of the PoW used by the bitcoin blockchain is that the process consumes much energy. However, the PoW consensus mechanism is more secure than the PoS one.
The reason why some people call for bitcoin’s transition from PoW to PoS is to reduce its consumption of electricity. However, the transition process is complicated since there is a need for consensus among its community members.
Related articles:
What Is Delegated Proof of Stake (DPoS)?
What Is Leased Proof of Stake (LPoS) and How Does it Work?
The Future of Ethereum and the Broader Cryptocurrency market
In the near future the use of cryptocurrencies should increase as more people and institutions accept them. Many companies will accept major cryptocurrencies like ETH and BTC as a means of payment. This is possible due to the recent launches of efficient payment gateways which makes it very easy for many people to transact using cryptocurrencies.
Also, several governments may accept major cryptocurrencies like bitcoin and ETH as legal tender. In the past El Salvador and the Central African Republic designated bitcoin as a legal tender. Many people from these countries can now buy bitcoin in large amounts.
The rise of decentralized finance (DeFi) has enabled the unbanked or underbanked to access financial services. Therefore, in the future the DeFi sector is likely to continue growing.
For example, crypto lending and borrowing will make it possible for many people to get low interest finance. This will lead many people to buy Ethereum to use as collateral in various DeFi platforms.
We will also likely have more crypto derivatives such as exchange traded funds. These may increase the adoption of cryptocurrencies like ETH and bitcoin which may push their prices up.
Conclusion
The price of Ethereum coin has been constantly decreasing since April 2023. The major upgrades on the blockchain like Shapella have failed to increase the demand for ETH. Nevertheless, if the SEC approves ETH ETFs the ethereum price may rise.
