Ethereum network may not be strongly correlated with ETH’s diminishing value: report
A sudden surge in cryptocurrency prices earlier this year led to a sharp increase the value of Ethereum [ETH] to over $1,400. However, the coin has since dropped to levels hovering around $220. Michael Casey, chairman of CoinDesk’s advisory board, in a recent article explored a new speculation that’s going around – the correlation between the Ethereum network and its token’s valuation is probably not as strong as previously thought.
The article first appeared in CoinDesk Weekly, a newsletter sent out to subscribers every Sunday. This speculation is definitely disconcerting, especially for those who have accepted the “fat protocol thesis”.
For those who may not know, the idea put forward by Albert Wenger – partner of Union Square Ventures – states that the rising prices of digital tokens give room for developers of open-access software platforms to obtain value for their work. Developers can do so even when the protocol is free and open.
In the current internet paradigm, value can only be extracted by application developers who charge users for their services. Moreover, the current system dictates that developers of open-access protocols such as SMTP and HTTP do not charge for their services. The thesis argues that this system can be revamped with blockchain and digital assets.
Ethereum and the ICO market
According to recent tweets by Vijay Boyapati, founder of deals platform Dealupa, the main driver behind the recent crash in ETH prices is that the “ICO market is now largely dead”.
A large number of ICOs turned out to be scams while others that did manage to raise funds are trying to liquidate their ETH tokens before “their product runway vanishes before their eyes”.
“ETH held in ICOs increases reservation demand at the time the capital is raised, but lowers it as the ETH is sold on exchanges to provide funding for operations. In a bull market companies that have raised ETH may sit on it (increasing reservation demand) in hopes of extending their runway with the rising value of ETH. In a bear market companies will want to dump their ETH as fast as possible, hoping not to be last in line,” he explained.
ETH: likely to collapse?
In a recent TechCrunch article, Stellar technical advisor Jeremy Rubin stated that ETH will likely become worthless in the future, but the Ethereum network will end up succeeding “wildly”.
This led to Vitalik Buterin, Ethereum’s co-founder, admitting that the collapse of ETH was inevitable for now, unless changes were made to the underlying ecosystem.
According to Casey, this debate is critical because if there does exist a disconnect between a token’s utility value and its price, then investors will approach crypto trading in a very different manner.
“The jury is also still out on the whether Etheruem, or any blockchain platform, is even successful at all,” he said, adding that it was hard not to believe that the network’s developers were working towards creating “a great deal of value”.
At the time of writing, ETH had edged 0.3 percent higher against the U.S. dollar to trade at $219.82. In the last month alone, the crypto saw its value slump close to 30 percent while in the last three months, the coin’s value has more than halved.
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