What does a crypto market cap below $1 trillion signify for bitcoin and Ethereum?
The cryptocurrency market is once again under selling pressure as the total market cap of all cryptocurrencies falls below $1 trillion. The biggest cryptocurrency in the world, Bitcoin, hit a one-week low earlier today and is trading around $21,100. As BTC failed to produce a weekly closing beyond its 200 WMA, failing to turn the resistance into a support line, Bitcoin is once again under selling pressure.
All eyes are currently focusing on the global macroeconomic indicators and the Fed’s announcement of an interest rate hike later this week. Industry analysts predict that the Fed will raise interest rates by 75 basis points this week. However, there is ample chance for a 100 basis point increase because June’s inflation statistics came in higher than anticipated.
The cost of Ethereum is correlated with the cost of Bitcoin. Why? The reason is that Bitcoin accounts for around 65% of the cryptocurrency market. The market’s cryptocurrencies are all impacted by the price of Bitcoin. When Bitcoin increases, other cryptocurrencies tend to follow suit, and vice versa when Bitcoin decreases.
The market capitalization of cryptocurrencies is 65% Bitcoin. If the price of Bitcoin declines, the market capitalization of all cryptocurrencies, including Ethereum’s, looks bad. This scares off potential new investors and anyone thinking about purchasing more cryptocurrencies. If Bitcoin appreciates, it improves the outlook for the entire market and increases interest in Altcoins like Ethereum.
Ethereum 2.0
One of the reasons for performance issues was that early blockchain apps like Ethereum relied on the processing-intensive proof of work technique to verify and log transactions. In such a technique, participating computer nodes cooperate to generate cryptographic hashes that satisfy a network-determined level of sophistication. The difficulty level is kept high enough to deter attacks on the network in order to maintain stability because it is prohibitively expensive to operate the required gear.
Proof of work has a serious efficiency issue, which is a deliberate design flaw. Ethereum 2.0 will switch its blockchain over to a more effective proof-of-stake technology to start addressing that issue. The node that records each transaction in such a system is selected by an algorithm, with the likelihood of selection rising as the quantity of the currency the node’s owner possesses increases. As a result, the complexity of the cryptographic work can be drastically reduced, thus increasing the network’s performance. To participate, each node must stake its own currency, making an attack on the network prohibitively expensive.
By introducing sharding into the mix, Ethereum 2.0 will significantly increase the quality of its resource usage. The new approach does this by assigning groups of nodes specific data verification duties, with each node only accountable for checking the data it receives.
Ethereum may keep falling if it is unable to overcome the $1,460 resistance. Near the $1,400 region is the first area of support on the downside. The price might go towards the $1,375 support area if there is a definite move below the $1,400 level. Even further losses could drive the price of ether to the $1,300 level of support. All types of Ethereum investors have increased their accumulation over the past week.
