The past few months have been crazy for crypto investors. Bitcoin lost more than half of its value since the November 2021 peak, making a low of $19k. The freefall of Bitcoin led the whole cryptocurrency market to collapse. That was a complete setback for crypto investors who never thought of such a steep fall in just a matter of a few months. There is a different talk now in the crypto world and that is about Ethereum 2.0.
Ethereum 2.0 is coming soon, which is anticipated to impact crypto mining greatly. So, the question is how the current crypto crash going to impact Ethereum 2.0? This is what this article is going to discuss. But first, let’s discuss the key factors that lead to the crypto crash and then use them to correlate with Ethereum 2.0.
Key Factors Behind Crypto Crash
The cryptocurrency market crashed to a new low in June 2022. The cryptocurrency global market cap has fallen by over $2 trillion after making a touch of $3 trillion back in November 2021. Bitcoin made a low of around $19K, while Ethereum made a low of around $900. Many experts say that the freefall of cryptocurrencies indicates that investors are considering crypto as a risky asset.
The terrifying inflation fears with strict monetary policies caused the massive sell-off by investors. Moreover, the withdrawal paused by Celsius, the crypto lending service, further triggered the fear of losing investment.
The crypto market is behaving in sync with the stock market for the past few months. Since the stock markets had also seen a massive sell-off by investors due to inflation fears and interest rate hikes, the trend was also reflected in the crypto market. In addition, investors were seen to remain away from risky stocks, so the uncertainty of the crypto market also led them to opt for a massive sell-off.
Experts say that the regulatory concern is another factor behind the crypto crash. The world’s governments are in a move to regulate cryptos, which is causing fear among investors. Overall, the main reason behind the crypto crash is the fear of investors, which is triggered by multiple events, including high inflation, monetary policies, regulatory concerns, the Russia-Ukraine war, and similar other factors.
Ethereum 2.0 – A Quick Overview
Ethereum 2.0 is an upgrade to the Ethereum blockchain that targets to elevate the network’s speed, scalability, and efficiency to process more transactions and avoid bottlenecks. The noticeable upgrade is the Proof of Stake (PoS) consensus mechanism that will verify transactions via staking instead of miners using high-powered computers to verify transactions (Proof of Work model).
The word “Ethereum 2.0” does not exist now, as the Ethereum Foundation said back in January 2022 to stop referring to the upgrade as Ethereum 2.0. It is because Ethereum 2.0 gives a sense of a new network, but it is basically just an upgrade to the existing network. However, the word “Ethereum 2.0” has become so common that it is used everywhere to refer to the new upgrade of the Ethereum blockchain.
The Launch Cycle of Ethereum 2.0 and The Continuous Delays
Ethereum 2.0 is launching in multiple phases. The first phase known as “Beacon Chain” is already live from December 1, 2020. This phase introduces staking, but it is running as a separate blockchain currently. The second phase known as “The Merge” is yet to go live. This phase will merge the Beacon Chain with the Ethereum mainnet and end the PoW mining model. The third and final phase known as “Shard Chains” will assist in scaling the Ethereum network. This phase will spread operations from one single blockchain to 64 new chains.
The Merge phase was expected to be launched by now, but it is delayed once again due to some bugs in the “difficulty bomb”, a key catalyst in the “The Merge” phase. It is anticipated that “The Merge” phase will start in August if things go well this time. Afterward, the full upgrade to Ethereum 2.0 is expected to happen in 2023, as per the Ethereum Foundation.
Crypto Crash & Ethereum 2.0
Although Ethereum 2.0 is experiencing delays currently, it is definitely going to happen within a 1-2 year period. Once Ethereum 2.0 is in full swing, it will mean the end of the Proof of Work (PoW) model, the start of the new Proof of Stake model to verify transactions, more transactions per second (100,000 TPS), and significantly lower computing power and gas fee.
Experts believe that the launch of Ethereum 2.0 will uplift the Ethereum price. One reason is the staking model of validating ETH. The more ETH the validators have staked, the more chances they have to be selected for validating transactions and gaining rewards.
Looking at the current crypto crash, it was not expected at all. The factors that lead to the current crypto crash also impacted the stock market. Even the blue chip stocks suffered from the current sell-off pressure. What it means is that even if Ethereum 2.0 was launched before the crypto crash, ETH would not have withstood such sell-off waves easily. In such events, we will see some plunge in the price, but it would be of short-term because Ethereum 2.0 promises more speed, security, and scalability, which is much needed in the crypto world.
Here’s another question: will Ethereum 2.0 manage to get the interest and investment of investors considering the current fears of investors and the perception of the crypto market as highly risky?
Well, the current crypto or stock market crash is due to macro-economic factors, such as gas prices, supply chain issues, high inflation, monetary policies, etc. But these factors are going to settle down gradually. The gas prices have already started to go down, while both the crypto and stock markets are gradually gaining investors’ trust. So, it will take some time for investors to absorb the fear, but once the inflation starts going down and other factors settle down, we can expect big jumps in the crypto and stock markets.
Ethereum 2.0 is set to completely change how the Ethereum network works currently. The scalability, speed, and security it promises are going to be game-changing. The crypto crash did rise concern of investors trust in the crypto market, but the sentiments are getting better now gradually. So, we might notice investors to be more cautious about investing in cryptocurrencies, but the investment is not going to fade away, especially for cryptocurrencies like Bitcoin and Ethereum. However, things will be clearer in the next few months with the launch of “The Merge” phase of Ethereum 2.0. So, just wait and watch how the crypto market responds to Ethereum 2.0.