By Gaurav S. Iyer, IFC Published : March 29, 2018
Ethereum News Update
As Ethereum prices shed another 10% on Thursday morning, it seems appropriate to ask big questions: Were Ethereum prices in a bubble? Is that why ETH prices are crashing? Or is there a different explanation?
My initial reaction is that, no, Ethereum prices were not in a bubble.
However, it’s important to question our own assumptions. So let’s take a more thoughtful look at whether or not the current slump is justified.
Ethereum prices really took flight in the final quarter of 2017. After months of trading sideways, the second-biggest cryptocurrency exploded past $400.00. The momentum carried the ETH price beyond $1,400 by January 2018, but then market sentiment turned sharply bearish.
Well, if memory serves, the bullish trajectory formed after two exchanges gained approval for a Bitcoin futures contract. Investors saw this as a legitimization of cryptocurrencies. They envisioned a clear roadmap that, moving forward, would justify any and all valuations for digital assets.
First, they imagined, would come the derivatives, and with them, the hedge funds. Then, after regulators approved the creation of cryptocurrency exchange-traded funds (ETFs), other institutional money would flow into crypto assets. This narrative was the bedrock of rising crypto prices.
What broke the narrative? In a nutshell, uncertainty and regulation.
It started in South Korea, as some readers may recall. Tensions over a “cryptocurrency ban” cast a shadow over investors’ sunny outlook, driving weak hands out of the market. Ever since then, prices have become hyper-sensitive to regulatory reform.
No one wants to accept that in order for cryptocurrencies to go mainstream, there must be a reckoning with its impacts on the broader financial system. This means extensive dialogue with regulators, central bankers, and Congress. There’s simply no escaping it.
So what’s the verdict? Are Ethereum investors the victims of crypto-mania?
Overall, I don’t think so. Sure, there’s a lot of hype, some of it complete garbage. And of course, a vast majority of cryptocurrencies are next to worthless. But the core innovations in this sector—blockchain technology, distributed ledgers, smart contracts—have the potential to change the world.
We can only assume that valuations will match that potential eventually, which is why our Ethereum price forecast for Q2 is $1,500. Remember that ETH prices were almost at that level in January, when investors were hopeful about the future. Just because regulators will hold greater sway than previously imagined doesn’t mean that we need to abandon that optimism.