Perhaps one of the largest drivers of fear in the market was fresh concerns over regulations. Both the U.S. and China made announcements about coming regulations for taxes and other things.
In the U.S., the Treasury Department announced that it would begin to require any transfer of $10,000 or more to be reported to the IRS, though it is unclear how such a law would actually be enforced in the real world.
A report released by the Treasury Department said that cryptocurrencies were a growing concern.
“Still another significant concern is virtual currencies, which have grown to $2 trillion in market capital-ization. Cryptocurrency already poses a significant detection problem by facilitating illegal activity broadly including tax evasion.”
China also called for tighter regulations around mining and trading behavior. A statement from China said that it is time to “crack down on Bitcoin mining and trading behavior, and resolutely prevent transmission of individual risks to the social field.”
The country’s statement continued, saying “It is necessary to maintain the smooth operation of the stock, debt, and foreign exchange markets, severely crack down on illegal securities activities, and severely punish illegal financial activities.”
Where Does Ethereum Go From Here?
While the whole cryptocurrency market has followed Bitcoin in its steep decline, Ethereum has a lot of upcoming updates that could help to lift the crypto out of the hole.
In the next year or so Ethereum will experience massive changes to its system known as Ethereum 2.0. These changes will increase transaction speeds and greatly reduce the cost to move money on the network. In this update, Ethereum will move to a proof-of-stake consensus system instead of proof-of-work.
Right now, transactions on the Ethereum network can cost $100 or more, making transactions of anything under that amount impossible and not worth it. After Ethereum’s update, this issue will go away, greatly reducing the barrier to entry and allowing anyone to move money for far smaller fees.
Why does this matter for Ethereum’s price? It matters because with lower fees the network is suddenly opened up to more people that could not previously afford to use it. This increased use can help to bolster the decentralized financial ecosystem on Ethereum and in turn its price.
Other than moving to proof-of-stake, Ethereum has another update that will change the way transaction fees work and help to lower inflation, thus making it more scarce. The update, called EIP-1559 (Ethereum Improvement Proposal), will lower the volatility of transaction fees by burning a portion of the fees, rather than giving it all to miners.
Though this will cause miners to make less money, it will allow more people to use the network for smaller transactions. This update will replace the auction-style system that exists today for a standard rate known as the base fee. Instead of miners setting the fees the network does, and instead of the fees all going to miners most of them are burned, helping to lower Ethereum’s inflation rate.
The combination of lower fees and a lower barrier to entry for more individuals, along with a new system to lower the inflation of Ethereum, are both good signs for the crypto’s price. Should these new updates prove effective, Ethereum’s ecosystem and its price stand a good chance to grow.
