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For over a year now, the Ethereum Foundation has been on track for its most ambitious project yet – moving the Ethereum blockchain away from the proof-of-work (PoW) consensus algorithm to proof-of-stake (PoS). The project’s scale alone makes it incredibly complex, but success could kick start a massive bullish run for ETH.
While there have been several signs of progress, the latest one appeared to have been a bit of a dud. And with the market still in a downturn, it is now going to be interesting to see how Ethereum and ETH react going forward to the current landscape.
Here Comes Sepolia
Earlier this month, the Ethereum developers confirmed that they had pushed the latest step in the mission to move the blockchain to Pos. The Sepolia testnet was successfully implemented, marking the second-to-last major trial for the Merge – the process where the new PoS blockchain merges with the original Ethereum platform.
Anthony Sassano, an Ethereum educator who hosted the Sepolia live stream, confirmed that the transition went through without a hitch and that they don’t expect to have any problems with the Merge when it does happen.
The aftermath of Sepolia was quite encouraging. The price of ETH saw a slight upsurge and even went on to hit as high as $1,275. However, the asset was only able to climb so high as market forces eventually dragged it down again.
Sharp price movements for ETH following the Sepolia testnet launch. Source: TradingView.
In the days after Sepolia, Ethereum eventually went as low as $1,153. The asset’s price has since picked up again, but its failure to cross that $1,300 threshold has caused several analysts to predict that more downside could be on the way. Crypto Feras, a trader and engineer, shared his thoughts on social media and claimed that ETH’s price action showed that more drops could be on the way.
“PA is still showing clean rejection of the range-high. Potential bull flag being formed (not enough yet). If we continue bleeding below flag support, $1,020 is coming,” the analyst said.
ETH has not hit that low yet, but it calls into question the viability of Ethereum going forward and whether investors can trust it to deliver gains when the transition to ETH 2.0 is finally complete.
A Background On Ethereum 2.0
Ethereum 2.0 is the long-awaited transition to PoS that the Ethereum blockchain has been working on. The transition is expected to improve the blockchain’s functionality and make it more scalable. With reduced transaction costs and quicker speeds, Ethereum is hoping to improve its position as the foremost home for decentralized application (dApp) developers looking to build.
The blockchain market is currently fragmented. Individual blockchains are in constant competition to draw developers. Ethereum continues to enjoy the power of incumbency, but the platform has also had to deal with mounting competition from platforms like Solana and the Binance Smart Chain. Hoping to preserve its head start, the Ethereum Foundation is now looking to move to PoS to ensure that the blockchain remains scalable in the long run.
While ETH 2.0 has been an ambitious project it hasn’t been without its hiccups. However, the Ethereum Foundation has continued to make progress with it nonetheless, and there have been several impressive gains for ETH as they keep breaking multiple milestones.
Last October, the Ethereum developers implemented the London hard fork. The upgrade brought several changes to the blockchain, including a reduction in transaction fees and the implementation of a burning mechanism for ETH.
When the hard fork launched, the ETH price saw a significant uptick.
ETH price action following the London hard fork. Source: TradingView
Drawing Parallels Between Sepolia And London
It’s easy to consider the current upgrade and believe that ETH should be seeing massive jumps. However, it is not so clear-cut. The market is in a much different environment right now than when London launched, and that appears to be the biggest line of distinction.
As the chart above shows, London came at a point when the market was in the middle of a rally. The crypto market itself had dipped in the middle of last year, thanks in no small part to recovery from a months-long rally.
By October, the market had already seen a massive surge that caused coin prices to hit new highs. Bitcoin got as high as $69,000, and Ethereum’s all-time high – which currently stands at $4,800 – happened in November. So, London only helped to expedite what had already been noted – crypto was up, and any little boost would hav a pronounced effect.
A snapshot of the entire crypto market cap between September and November 2022. Source: CoinMarketCap.
On the flip side, things aren’t so clear this time. The crypto market has been in a dip for over a month now, so Sepolia can only do so much to bolster ETH’s price prospects.
Going forward, all eyes will be on the next steps leading up to the Merge. On a recent conference call, Ethereum core developer Tim Beiko confirmed that they are looking at a tentative date of September 19 for the final Merge that will signal the Ethereum blockchain’s full transition to PoS.
While this will be a monumental milestone, it will only make sense for the market to have recovered by this time. If the market is in a rally and the Merge then happens, we could see ETH break its previous high pretty easily.
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