On Monday, August 15, cryptocurrency prices fell as investors and analysts turned their attention to Ethereum's imminent merger.
According to CoinGecko, Bitcoin, the most popular cryptocurrency, was down 2.4 percent to $23,975.68 at the last check, while ether dropped about 1% to $1,882.88, and dogecoin fell 1% to $0.075312.
The 'Most Hated Rallies'
Frank Corva, a senior digital assets analyst with Finder, said that Raoul Pal, the chief executive of the Financial-education platform Real Vision, tweeted last week that the recent month-long surge in risk-on assets like tech stocks and cryptocurrency is one of the most hated rallies in quite a few years.
"What Pal meant by this is that most people are describing this recent spike in risk-on assets as a minor and soon to be short-lived bullish trend in an otherwise macro bearish environment," Corva said.
In response to this recent rise, financial Twitter (FinTwit) and Crypto Twitter (CT) have been filled with emotion that resembles something of a cross between disbelief and downright rage.
After the previous eight months of mostly downward price action in risk-on asset markets, investors and traders may be deceived or denial.
"Maybe eight months of downward pressure on markets as a result of the Feds engaging in quantitative tightening has completely disconnected risk-on-asset investors from the euphoria they felt from mid-2020 through the latter part of 2021," he said.
"So, the real issue here is whether or not we are at the beginning of a larger risk-on asset rally, or do we reverse and test the lows seen in the SPY, the QQQ, and most crypto assets, including bitcoin and [ether] in June 2022?"
Corva said the answer to this question lies mostly in whether the consumer price index falls, and whether the Federal Reserve continues to hike rates aggressively.
"But there's also a story developing within this macro framework," he said. "Ether the native asset of the ethereum blockchain is on the verge of a price breakout compared to bitcoin."
Ethereum's Last Dry Run
Winston Ma, the managing partner ofCloudTree Ventures, says ethereum, the second-largest cryptocurrency, has recently gained momentum, reaching once again $2,000, as it closes in on the Merge scheduled for mid-September.
Both ethereum and bitcoin, the leading cryptocurrency, use blockchain technology to validate and record transactions. However, the future shift in the way ethereum operates will have implications for speed, durability, reliability, and accessibility.
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"Ethereum completed its final dry run for the Merge, which will see ethers underlying blockchain transition from its energy-intensive proof-of-work system to a more efficient proof-of-work system," according to Ma.
"Bitcoin has lost some ground to ETH in recent years, with its market dominance falling below 40% from about 70% at the beginning of 2020," he said.
"This ETH alteration is anticipated to make it quicker and more energy-efficient, which may boost ETHs' market capitalization closer to bitcoin's status as the crypto king."
Bridges across the Chain
Meanwhile, David Lesperance, the managing partner of Lesperance & Associates, said authorities are looking closely at "cross-chain bridges," which allow for the transfer of assets and information between independent blockchains.
Bridges may be a major tool for criminals to launder money by sending digital assets across blockchains, bypassing a central service that can track and freeze transactions, according to the author.
According to blockchain analytics company Elliptic, a single cross-chain bridge called RenBridge has been used to loot at least $540 million in crime-related crypto cash since 2020.
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"Developers have constructed cross-chain bridges that allow users to exchange tokens from one chain to another," said Lesperance. "Developers have built darknodes, or networks of thousands of pseudonymous validators, which have made them a popular tool for debunking cryptocurrency."
Similarly, he added,for money laundering, the bridges are particularly vulnerable to attacks because they hold hundreds of millions of dollars in escrow and multiplied their possible sources of attack by operating across two or more blockchains.
"A bridge known as Nomad lost almost $200 million in a horrific bug," he said. "Within hours, the thieves began using RenBridge to launder the money."