Crypto investors have seen a wild few months. Since its peak in November 2021, Bitcoin has lost more than half of its value, reaching a low of $19k. The collapse of the entire cryptocurrency market was caused by the freefall of Bitcoin. For cryptocurrency investors, who never anticipated such a dramatic collapse in only a few short months, that was a total disappointment. The topic of Ethereum 2.0 is currently being discussed differently in the cryptocurrency community.
The impending release of Ethereum 2.0 is expected to have a significant influence on crypto mining. Therefore, the question is how the recent cryptocurrency crash would affect Ethereum 2.0. This is the topic that this article will cover. But before we compare Ethereum 2.0 to those variables, let’s first talk about the main causes of the cryptocurrency crash.
The Main Causes of the Crypto Crash
In June 2022, the market for cryptocurrencies experienced a new low. The value of the global cryptocurrency market has decreased by more than $2 trillion since November 2021, when it briefly reached $3 trillion. Ethereum reached a low of about $900, while Bitcoin reached a low of about $19K. According to many experts, the freefall of cryptocurrencies shows that investors view cryptocurrencies as a dangerous asset.
The enormous sell-off by investors was prompted by the horrifying inflation fears coupled with stringent monetary policy. Additionally, the cryptocurrency loan firm Celsius’s decision to suspend withdrawals added to investors’ anxiety of losing their money.
For the past few months, the cryptocurrency market has been acting similarly to the stock market. Due to investor panic over inflation and interest rate increases, the stock markets had also witnessed a significant sell-off, and the pattern was evident in the cryptocurrency market as well. Additionally, investors were deemed to avoid riskier equities, thus the unpredictability of the cryptocurrency market also prompted them to choose a significant sell-off.
According to experts, another reason for the cryptocurrency drop is the regulatory uncertainty. Investors are afraid because governments throughout the world are attempting to regulate cryptocurrencies. Overall, investors’ worry is the primary cause of the crypto crisis. This fear is brought on by a variety of events, such as high inflation, monetary policies, regulatory concerns, the Russia-Ukraine war, and similar others.
A Brief Introduction to Ethereum 2.0
In order to handle more transactions and prevent bottlenecks, Ethereum 2.0, an upgrade to the Ethereum blockchain, aims to increase the network’s speed, scalability, and efficiency. The noticeable upgrade is the Proof of Stake (PoS) consensus mechanism that will verify transactions via staking instead of miners using high-powered computers to verify transactions (Proof of Work model).
The Ethereum Foundation said in January 2022 to cease referring to the upgrade as Ethereum 2.0, hence the term “Ethereum 2.0” is no longer used. It’s because Ethereum 2.0 provides the impression of being a brand-new network even though it’s really only an upgrade to the current network. However, the phrase “Ethereum 2.0” is now so widely used to describe the latest upgrade to the Ethereum blockchain.
The Ethereum 2.0 Launch Cycle and Ongoing Delays
Ethereum 2.0 is being released in stages. Beginning on December 1, 2020, the “Beacon Chain” phase is already operational. Staking is introduced in this phase, but it presently operates as a distinct blockchain. The “Merge” or second phase has not yet gone live. This stage will discontinue the PoW mining model and integrate the Beacon Chain with the Ethereum mainnet. Shard Chains, the third and final phase, will help scale the Ethereum network. During this phase, 64 additional chains will join the original blockchain’s activities.
The “difficulty bomb,” a crucial catalyst in “The Merge” phase, has several flaws, which is why the Merge phase is presently running behind schedule. If everything goes according to plan, “The Merge” phase should begin in August. After then, according to the Ethereum Foundation, the full upgrade to Ethereum 2.0 is anticipated to take place in 2023.
Ethereum 2.0 and the Crypto Crash
Ethereum 2.0 will undoubtedly launch within the next year or two, notwithstanding the present delays. When Ethereum 2.0 is fully operational, the Proof of Work (PoW) model will be replaced with the new Proof of Stake model, which will validate transactions and allow for 100,000 transactions per second (TPS) and a large reduction in computational power and gas fees.
According to experts, the release of Ethereum 2.0 will increase the value of the cryptocurrency. The staking model of ETH validation is one of the causes. The probability of validators being chosen to validate transactions and receive rewards increase with the amount of ETH they have staked.
Considering the recent crypto crash, it was utterly unexpected. The stock market was damaged by the same forces that caused the current crypto crisis. Due to the strain of the current sell-off, even blue chip stocks suffered. This suggests that even if Ethereum 2.0 had been released before to the cryptocurrency meltdown, ETH would not have been able to withstand such sell-off waves with ease. In such situations, the price may drop, but it won’t last long because Ethereum 2.0 promises increased speed, security, and scalability, all of which are crucial in the crypto market.
Will Ethereum 2.0 be able to attract investors’ interest and money in light of their current anxieties and their impression of the cryptocurrency business as being extremely risky?
Well, macroeconomic variables such rising inflation, monetary policies, supply chain concerns, gas prices, etc. are to blame for the present cryptocurrency or stock market fall. But these elements will progressively fade away. While gas prices have already started to decline, investors’ confidence in the stock and cryptocurrency markets is progressively growing. Investors will therefore need some time to get over their anxiety, but if the inflation starts to decline and other factors start to stabilize, we may anticipate significant increases in the cryptocurrency and stock markets.
The existing operation of the Ethereum network will be entirely altered with Ethereum 2.0. It will completely change the game thanks to its promised scalability, speed, and security. The cryptocurrency meltdown did cause investors to lose faith in the sector, but attitudes are now steadily improving. It is possible that investors are becoming more cautious about making cryptocurrency investments, but this trend will not last, especially for popular cryptocurrencies like Bitcoin and Ethereum. However, once “The Merge” phase of Ethereum 2.0 launches in the coming months, everything will become more evident. So, just wait and see how Ethereum 2.0 affects the cryptocurrency market.