Ouch. This year has been anything but an enjoyably one for ethereum owners. The cryptocurrency is down 86% from its January peak, and has fallen 76% just since its May high, moving to a multi-month low just today.

Many reasons have been suggested, and they’re all likely to be contributing factors. The cumulative weight of those worries has simply proven too great.

There’s a much bigger and more philosophical reality also at work here though, one most fans and followers of the whole crypto movement generally don’t even like to talk about, let alone acknowledge. That is, cryptocurrencies always have been saddled with a fatal flaw.

Crypto Is Stalling

Explanations for the selloff have been numerous. The most-cited turning point this week, however, has been this past weekend’s comment from ethereum’s co-creator Vitalik Buterin.

He explained to Bloomberg, “If you talk to the average educated person at this point, they probably have heard of blockchain at least once. There isn’t an opportunity for yet another 1,000-times growth in anything in the space anymore.”

That in itself is a problem, as the bulk of the speculation in the cryptocurrency was rooted in hopes for more quadruple digit gains.

Buterin’s pessimism certainly had help though. On Tuesday, a federal judge ruled that digital currencies could be considered an investment, which would make them subject to regulation; a lack of regulation was one of the key selling points of cryptocurrencies.

And yet, ethereum was falling in earnest well before this week.

Although less verifiable (almost unverifiable, in fact) is the suggestion that much of the weakness from ethereum of late has been strong selling of the digital currency from a swath of coders who took it as payment for rendered services.

Much like an initial public offering, an initial coin offering (or ICO) might use that currency as a means of compensation.

Seeing the value of the digital currency in a freefall, outfits that developed blockhain projects in an effort to improve its liquidity and transparency may need to cover expenses with real, government-issued currency, converting their ethereum by selling it for actual money.

The Crypto Irony

It’s the latter possibility that offers the most irony. If it’s true (and it’s likely to at least be partially true), then it breaks one of the cardinal rules of what constitutes a currency.

That is, it has to be universally acceptable, or at least exchangeable for a currency that serves as an acceptable form of payment. The organizations selling goods and services to the people and groups behind ethereum’s ICOs didn’t want payment in it.

That, of course, forced ethereum to break the second rule of currencies. That is, the value of a currency has to be at least stable enough that it will have a predictable level of purchasing power from one week to the next.

The third fatal flaw exposed within the past few days isn’t an outright violation of what defines a viable currency, but is a red flag nonetheless, regulation.

While centralized regulation of a currency clearly has perceived downsides, it would be naive to believe a lack of oversight wouldn’t result in manipulation.

Eventually, unsuspecting consumers would be harmed. Those consumers, in turn, would look to a justice system for recourse. And while that government’s justice system would theoretically have no jurisdiction over a cryptocurrency, it would almost certainly seek to prevent future abuses. That would induce the aforementioned regulation.

The SEC is simply trying to preemptively stave off the potential problems that would arise should the crypto market move any further into the mainstream. That move towards oversight, however, negates one of the key aims of digital currencies.

Exacerbating all of these stumbling blocks is the fact that cryptocurrencies are all competing with one another to be “the one.”

Nobody can honestly say these developments are surprising.

Bottom Line for Ethereum

So is this the beginning of the end of ethereum? Probably not.

While the developments admittedly paint a grim picture, it’s an assessment that will most likely fall on a lot of deaf ears. Too many cryptocurrency owners are inexperienced and even first-time investors that take things at face value.

They don’t fully understand digital currency has no inherent, tangible value in and of itself. The lack of (necessary) scarcity doesn’t jibe with this crowd. It’s all rooted in perception.

And, too many of these speculators overlook that the creators of cryptocurrencies have something to gain the more active those digital currencies are traded, and the higher those cryptocurrencies are priced.

In other words, though in a free fall know, there are still enough newcomers to the game that we’ll see a rebound sooner or later. In the long run though, ethereum is still fatally flawed.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.