The cryptocurrency market has been recovering from lows set back in mid-June as the rally has coincided with the overall stock market bounce back. Cryptos have risen at a higher rate over the past six weeks though as the volatile assets continue to rapidly sway in price.
How Are the Leading Cryptos Performing?
Interestingly, Bitcoin (BTC) hasn’t seen the same recovery that Ethereum (ETH) and other crypto platforms have experienced. Ethereum itself is up nearly 70% from its recent lows hovering around $1,000 back in mid-June while Bitcoin is “only” up about 25% during that timeframe. Part of that is Ethereum fell to a large degree from early-April to mid-June as both are roughly down 50% from where they were at the start of April.
However, there are a few significant reasons why Ethereum is recovering at a faster rate than Bitcoin Some of them even have to do with the technology itself for a change.
The Ethereum Merge
Ethereum 2.0 is coming soon as it prepares to complete its transition from a proof-of-work (PoW) network to a proof-of-stake (PoS) platform. The merge to 2.0 has been a long drawn out wait with plenty of delays but, reportedly, only a few tests remain before it is finished finally. The merge for Ethereum’s final test network environment, Goerli, is occurring next week between August 6-12th. Then, the Ethereum mainnet merge should occur in September if the test goes as planned.
Using a PoS consensus mechanism will allow Ethereum investors to earn rewards for staking their ether. PoS systems also require far less energy than their PoW counterparts which tend to be extremely energy intensive, which has led to numerous environmental concerns about the impact of proof-of-work crypto platforms. One of the other major benefits of staking systems is that only investors who are financially committed to the success of the coin can earn rewards from staking.
Etherum’s approaching merge to a PoS system and it being the most heavily used platform for the development of other cryptocurrencies have led to more crypto investors betting on its recovery.
Alternatively, Bitcoin uses a PoW model and more importantly has been failing in its task to act as an inflation hedge or asset that trades similar to gold. Many investors had believed Bitcoin can act as an inflation hedge as a currency with no central authority that is supposed to mimic gold in some ways such as a limited supply that becomes increasingly hard to mine as less of its supply is left.
Bitcoin has fallen significantly from highs set back in November 2021 and has been more correlated to overall markets, particularly tech stocks, than many predicted. The cryptocurrency has suffered along with the stock market in 2022 with Federal Reserve policy decisions and international affairs such as the Russian invasion of Ukraine having huge impacts on its value.
Bitcoin has reached a point where it trades far more like another tech stock than some completely uncorrelated asset class. This relationship has only strengthened as more companies make investments in cryptos. In fact, overall retail speculative activity is extremely correlated with the price of Bitcoin when comparing total call option contracts to Bitcoin’s price chart.
Cryptos have enjoyed a nice recovery over the past month and a half but still have a long way to go to reach where they were earlier in the year, let alone highs set in November last year. The total market cap of cryptocurrencies sits just under $1.1 trillion, nearly half of where it was back in early-April when it sat around $2.15 trillion. The technology’s biggest coin, Bitcoin, has been struggling to recover as rapidly from lows while Ethereum remains a favorite to rebound as it gets ready to finally complete its merge to 2.0.