Bitcoin, Ethereum and the next bear market
you might want to read this story in italian
As we all know, the market doesn’t like when Bitcoin and other Proof of Work crypto’s environmental impact come to mainstream attention.
There is considerable literature describing how low this consumption truly is, and how it compares to many others. We are witnessing an almost entire volume drop in Bitcoin spot charts these days. Price action after Dec. 4 flush was entirely derivatives driven. There is no doubt that buyers interest lacks at this stage.
At the end of this week (Thursday, 01/20/2022 ), there is a hearing titled “Cleaning Up Cryptocurrency: The Energy Impacts of Blockchains” at the US House Committee on Energy and Commerce. It will focus on “the crypto mining energy footprint and how proof of work (PoW) blockchains such as Bitcoin and Ethereum may migrate to cleaner alternatives.”
Now, we all know Ethereum’s migration to Proof of Stake (PoS) is already ongoing, and the complete migration from PoW to PoS for Ethereum is due to happen somewhere between mid 2022 and 2023. So it’s very close.
PoS Bitcoin, a big NO.
On the other side, Bitcoin will never migrate to Proof of Stake. Bitcoin is Proof of Work, by definition:
The network timestamps transactions by hashing them into an ongoing chain of hash-based proof-of-work, forming a record that cannot change without redoing the proof-of-work. The longest chain not only serves as proof of the sequence of events witnessed but proof that it came from the largest pool of CPU power. As long as most CPU power is controlled by nodes that are not cooperating to attack the network, they’ll generate the longest chain and outpace attackers.
Hence, Bitcoin will never migrate to Proof of Stake because its intrinsic value, and its form of store of value, and its security, are mainly determined precisely by the incredible amount of computational resources required to attack the chain or just let it go forward.
How do we frame all this into the current fundamental situation?
According to this chart from my colleague Zen, we are at the end of the 4-year bear-bull cycle.
Although I don’t particularly appreciate analyzing the past, I follow this as right until it is proven wrong. I believe in this chart. Starting from Dec ’11, it is one of the most accurate long term draws I ever seen in crypto.
The public will never know what bear market even means.
Compared to the past, there is a big difference, though: in 2018, at the end of the last cycle, we barely had some on-chain games like crypto kitties, some file coins for decentralized storage, and that was all. Cryptocurrency didn’t have actual use cases but speculation and store/transfer of value. They were also still seen by most of the mainstream public as something weird and underground, dark web, drugs, and illicit related.
Instead, we now have Institutional Investors, we have the DeFi, with billions locked in it at this stage. There are tons of on-chain play-to-earn games, metaverses, etcetera. We have the NFT hype that brought people’s attention to the blockchain and crypto ecosystem, and the most prominent entertainment players are already on it. We have the fan tokens too.
All this stuff will keep going on despite any bear market. No one will stop the public from seeking NFTs from great artists, hyped mainstream stars, sports teams, etcetera. Hopefully, many will refuse the commercial trashbin Facebook’s Meta will be and migrate to the improved DAO governed metaverses, rather than a Diorama governed by a megalomaniac.
So once completed the hard part of the retracement for Bitcoin, during which dominance will grow as usual for sure, I think we will see many projects outperforming BTC during the bear market.
I’m curious to see how the price will perform around the MicroStrategy avg entry at ~29k. They have 121000 BTC, they will start losing $121.000 per $1 of Bitcoin price drop ($121M each $1000) below their average. As they will hopefully try to defend the level rather than start selling their bags, many big investors still out now know they will have the chance to have a much lower entry and maybe even buy more than our beloved Micheal “Saylor (Moon).”
Going back to altcoins, I think that the best projects, Ethereum in front of all, will start outperforming BTC during the following years, probably creating new lows into the BTC dominance chart despite the bear market.
One little thing supports my view. It’s already almost one year since coinmarketcap added Ethereum dominance to their homepage.
If you enjoyed the content, please comment and follow me on Medium and Trading View for more.
