The Striking Similarity of ETH to Bitcoin

Ethereum’s price has plummeted in the past 30 days, falling from a brief all-time high of $420 to now below $200. All evidence suggests it pulled all other digital currencies up with it, at some point nearly overtaking bitcoin’s market cap, and now that it's on the fall again, so is everything else with it.

When the $400 price level was reached, no one could believe it. People expected a correction, but no one knew when it would happen. Then, the first sell-off ensued. It was awful, to say the least. Down to $248 in minutes as everyone rushed to get out thinking this was it, the ship is sinking...

In hindsight, we can absolutely say the first sell-off was caused by the infrastructure being unable to keep up. Exchanges, like GDAX and Kraken, simply couldn't handle the load, leading to considerable backlogs in deposits. Bears exploited that weakness in the first sell-off, with the atmosphere somewhat changing after all the bubble charts were posted everywhere, but denial was strong. Then GDAX crumpled again in a flash crash that sent the price down to 10 cents for a very brief period, with the price then oscillating between $200 and $330.

That’s the story so far... and with some superficial differences, it looks very similar to March 2013. Back then, Bitcoin had risen from around $10 to a brief high of $266, making new highs daily, with many calling it a bubble. Around $250, the mood back then was unstable. Everyone sort of expected a correction, but no one knew when. Someone exploited that expectation, DDoS-ing Mt Gox, then the biggest bitcoin exchange by far. Everyone panicked. The sell-off was the biggest one we'd seen yet. Down to around $70 in minutes, a very brief recovery to around $140, then a months long sideways at around $50-$70, until the whole thing took off once again in November 2013 in a spectacular rise to $1,000.

The similarities extend a bit further as March 2013 was the second time bitcoin had risen, with the first time being in 2011 when it went from pennies to a high of around $30, then instantly crashing because of a black swan event as MT Gox was hacked. That’s very similar to the story of ETH during spring 2016 when it rose from pennies to around $25, then crashed down due to the Slockit DAO hack.

It took bitcoin two years to recover from its 2011 hack because back then if Bitcoin works at all was very much in question. For Ethereum, the 2016 downtrend lasted about five months, from September to February, with the currency then taking off earlier this year in exactly the same way Bitcoin did in 2013. The two latter crashes, in 2013 and now in 2017, did not occur because of any real external event, because of any change in facts, or really for much of any reason at all, except that they had risen too high, too fast, and the market thought they had done so, expecting them to go down, with any excuse ready to be grabbed. Mania had simply taken hold, forcing reality to exert itself and bring everyone down to earth because everyone had been partying too hard, drinking too much and the music was too loud.

This isn’t a phenomena unique to digital currencies. Countries boom and bust, stock markets crash, but in this space it all happens a lot faster. Because it is all so very new and there is so much happening that you’re never sure whether $200 is incredibly cheap or very expensive, leading to considerable swings. Moreover, uniquely in this space, everyone can take part. Stocks have to go through brokers and the rest. ETH, you just buy like you’d buy some bread. Which means in this space we have the full crowd, rather than just investment bankers playing in their skyscrapers. So they yo-yo in sentiment, thinking $5 is expensive in February 2017, $400 is cheap in June 2017, while being unsure about $200 in July, and waiting for the market to go up or down.

But if Ethereum continues to follow bitcoin’s trajectory, when it roars again it may do so in a way we have never seen before because its bull runs have been longer than bitcoin’s, its downtrends far shorter, its price gains a lot higher. That is likely to be because Ethereum is an upgrade of bitcoin. The later does what was interesting a decade ago – money transfers worldwide. Ethereum does that, but it also does what is very interesting right now – programmable money. It solves the wealth distribution problem in a unique way. It gives rise to all new business model and modalities.

That’s something this space has been expecting at least since 2013. It is now here and at a global scale with nearly all household brands and main world governments exploring its use one way or another. Whether their explorations will amount to anything remains to be seen, although pilots are already underway. Likewise, how ethereum projects will progress is not very clear, but a good guess would be most of them will go under while some may develop into giants.

In that context, the current price movements seem temporary, both the very highs and the very lows. In the process, through feedback, the platform is strengthened, incrementally and gradually improving, making it more appealing, leading to more utility, which may then lead to another round of euphoric boom and bust.

But we have to wait and see whether that will indeed be the case to be sure, because although the past looks an awful lot like the present, you can’t really predict the future with any level of certainty.