It was a rollercoaster of emotions and storylines in the cryptocurrency space yesterday, also known as a Wednesday. There was high drama in Bitcoin, Ethereum, and DeFi. Let’s quickly recap what transpired, which lead to a dramatic shift in price across major cryptoassets.
Fundamentals - No change.
Nothing changed about the strength of the Ethereum blockchain, Bitcoin blockchain, or DeFi projects. If anything, the fundamentals are as strong as ever.
An excellent thread summarizing the fundamental value behind major Decentralized Finance protocols (all operating on the Ethereum blockchain) was produced by Block49 Capital. It’s worth the read and may convince you about the future of finance if you’re still on the fence around blockchain based banking.
Sentiment - Major change demonstrating the fragility of crypto markets
Vitalik Buterin, one of the creators of Ethereum, made news yesterday when he donated billions of dollars to various important causes and research. His donations came from tokens that were sent to his public Ethereum wallet, many of which were cryptocurrencies that retail investors (the Tik Tok kind) were fond of. The creators of SHIBA, a token that claims to be the DOGE killer, sent half the supply to Vitalik’s address because they considered those tokens ‘burned,’ or removed from circulation because it was unlikely Vitalik would ever do anything with them. They were wrong. An excellent article from @RektHQ can be found below if you want to get the scoop, and my thoughts are summarized in a tweet too. I hope only good comes from Vitalik’s actions!
Elon Musk, the world’s second richest man, also made a bold statement on behalf of Tesla regarding their acceptance of Bitcoin for car payments. Musk has been very pro cryptocurrency, specifically Bitcoin and Dogecoin. Perhaps the decision to suspend Bitcoin payments is due to pressures from investors, board members, and other stakeholders because Tesla’s green, sustainable image conflicts with the high energy consumption required to support the Bitcoin network. As a former renewable energy professional, this is an absurd assumption because new energy generation is largely coming from sources like solar and wind, including many large Bitcoin mining operations. Perhaps Tesla is going to announce a program that utilizes Tesla energy technology to mine Bitcoin and they are playing the long game.
Technicals - A long distribution phase leads to a shaky market
Bitcoin has been in a ‘distribution phase’ for quite some time. Investors who purchased Bitcoin before its run up to $64k are distributing profits into USD or other cryptoassets. Many alternative cryptos have been catching up as Bitcoin is being used to buy these tokens, including Ethereum, which has outperformed Bitcoin by 3X this year. There are more sellers than buyers and the order books thin out. The below Twitter thread from one of my favorite traders is an excellent summary of what happens during distribution phases.
Summary
The combination of sentiment and technical market indicators spooked traders and lead to a selloff. Fundamentally, things have never been stronger, unless Proof of Work blockchains like Bitcoin are now outdated. This could be good for Ethereum as the transition to Proof of Stake is underway.
Carry on!