For ardent supporters of Ethereum (CCC:ETH-USD), many of whom have undoubtedly wondered about the upward possibilities of the cryptocurrency bull market, the devastation that hit this space was a harsh reality check. But when the co-creator of the crypto coin you cherish admits that the digital market could be in a bubble? That’s particularly cruel.
Yet this is the environment that Ethereum stakeholders find themselves. In an exclusive interview with CNN Business, Vitalik Buterin was matter-of-fact about the recent crypto volatility.
This was the case even though he apparently lost his billionaire status based on the value of his public ETH wallet, which saw it dip from above $1 billion to under $900 million.
To be fair, Buterin remains long-term bullish on crypto. As he pointed out, one of the main factors that separates the current bull market (assuming it continues higher) from others is mainstream credibility.
Beyond the sheer volume of interest from regular Joes that previously never considered crypto investments, blockchain developers had forwarded remarkable applications.
Therefore, it’s not inconceivable that after affecting how people invest, the broader blockchain industry could change how people live.
As Buterin put it, “Crypto isn’t just a toy anymore.”
Because of that, the computer programing developer cautiously stated that Ethereum could possibly overtake Bitcoin (CCC:BTC-USD) in market value.
I’m assuming he meant overtaking BTC at its price point of $60,000-plus, not where it is right now. But look, Ethereum at $40,000 — let alone any five-digit price — would be awesome. I’m just not sure if it has a chance in this go around.
While I’d love to see alternative cryptocurrencies or altcoins slingshot to the moon from here, I think we all need to look at the reality of the situation.
Governments Wise up to Ethereum
Undoubtedly, one of the biggest catalysts for the cryptocurrency implosion was China. Making sure to stick itself into the news for seemingly everything, Chinese regulators banned financial institutions and payment companies from providing services related to cryptocurrencies.
That knocked the wind out of Bitcoin, Ethereum and most other digital assets.
But the crypto complex wasn’t done with high-profile governmental action. Recently, the U.S. Department of the Treasury “announced that it is taking steps to crack down on cryptocurrency markets and transactions, and said it will require any transfer worth $10,000 or more to be reported to the Internal Revenue Service.”
This is a bummer. Essentially, the U.S. government has become the North Korea of financial markets. Despite the onerous restrictions placed on cryptocurrencies, Americans were still able to enjoy robust decentralized investments, but a crackdown on crypto transfers and the situation gets muddy.
Admittedly, I can understand why the U.S. wants to Kim Jong-un the crypto market. By forcing Americans to transact their dollars in-house so to speak, the domestic economy (and Uncle Sam) benefits. However, when money goes offshore, the federal government basically subsidizes other nations’ wealth expansion.
While I have zero proof, I think the issue came to a head for Washington not because of tax evasion reasons but because of the stimulus checks. According to research by Mizuho Securities, nearly 10% of the stimulus checks may have been used to buy Bitcoin and stocks.
Stocks? That’s fine. But Bitcoin, Ethereum and other cryptos? That’s a problem because the beneficiary may be anyone, including non-Americans. Therefore, it’s harder to keep up the façade that stimulus checks work in and of themselves. In reality, you need people to spend the money in America, not in crazy crypto land.
Proceed With Caution
If government agencies succeed in crimping the cryptocurrency market, the long-term narrative for Ethereum and other coins becomes extremely questionable. Because once big government succeeds in one restriction, you can bet more regulation is on the horizon.
Nevertheless, even if such onerous prognostications fail to materialize, you may not want to jump 100% aboard the Ethereum train now. I don’t begrudge a small portion of your speculation funds toward the current discount. But the technical setup for Ethereum suggests more pain is on the way.
By the time you’re reading this, chances are, InvestorPlace has published my technical analysis on Litecoin (CCC:LTC-USD). Take a look at that article. The trading dynamics for LTC apply equally to ETH.
But in summary, all investments, digital or otherwise, are tied to human emotions. This gives cryptos the afterburners they enjoy when things are looking up. But when circumstances sour, the volatility could be ugly.
On the date of publication, Josh Enomoto held a LONG position in ETH, BTC, LTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.