Ethereum (CCC:ETH-USD) is down about 30% since the first of the year. And as of this writing, the slide in ETH is much greater than that of Bitcoin (CCC:BTC-USD). BTC is “only” down 19% for the year.
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It’s too early to discern exactly why Ethereum is being treated more harshly than Bitcoin. And this may be much ado about nothing. Many altcoins are competing to be a replacement for Ethereum. However, there’s no evidence ETH will lose its number two status anytime soon.
Maybe the best platitude I can offer is that misery loves company. Since November, the total market capitalization for cryptocurrencies has fallen from a record high of $3.1 trillion to below $2 trillion. Now I know some will wag their finger at me for using a metric like market cap with cryptocurrency. But right now, it’s how we keep score.
However, now more than ever, it will be important for cryptocurrencies to deliver a benefit (and value) that goes beyond price. And that’s where the story may get exciting for Ethereum.
Into the World of Blockchain Gaming
An emerging trend that remains in its infancy is blockchain gaming. Blockchain gaming features a “play-to-earn” (P2E) model. In this case, digital items that exist in video games (e.g. collectibles, weapons, etc.) become real world assets in the form of non-fungible tokens (NFTs).
NFTs are stored on the blockchain where consumers have the “right to transfer” the assets. This is creating a burgeoning economy one, in which, some gamers are making a living exploring metaverses and trading collectibles.
The attraction is easy to understand. As players invest more time and effort in the games, they can create more value for themselves, the other participants and the developers. And according to data from DappRadar, NFTs from gaming generated $4.8 million of revenue in 2021. That equates to about 20% of all NFT sales.
The bull market for blockchain gaming began in 2020. And right now, Ethereum is the unquestioned leader in blockchain gaming. However, it can’t be stressed enough that this is still a very small niche in the overall gaming market. And one obstacle is that most games will require gamers to have a wallet address for the leveraged blockchain.
Obstacles to Growth
Right now, blockchain games are crudely designed making the experience less than ideal for gamers. And blockchains are notoriously energy hogs. These concerns are in addition to the gas fees that users pay to be on the network.
However, that’s where Ethereum 2.0 can help. The new iteration is likely to be a bit more environmentally friendly and is promising faster speeds and lower gas fees.
But a larger concern that was raised by Justin Birnbaum of Forbes was the potential need for regulation. Birnbaum interviewed Nick Casares, head of product at blockchain incubator PolyientX who said regulatory concerns surrounding blockchain gaming is unchartered territory.
Essentially, the line between gaming and gambling may get blurred. According to Casares, regulation is needed to guide people toward doing the right thing and discouraging them from doing the wrong thing.
Ethereum Has Staying Power
Blockchain gaming may not be the only catalyst for Ethereum. Bloomberg Intelligence analyst Mike McGlone recently predicted that Ethereum will reach $5,000 by the end of 2022. A key reason for this surge, according to McGlone, will be a shift to cryptocurrencies as the Federal Reserve raises interest rates as expected.
Along those same lines, cryptocurrency traders and investors have to be heartened that more traditional financial companies are offering ways for clients to buy, trade and custody cryptocurrency. This was reinforced by former Goldman Sachs (NYSE:GS) chief executive officer (CEO) and chairman Lloyd Bernstein in an interview with CNBC.
Bernstein made bearish comments about Bitcoin in the past. But he believes a more pragmatic approach is required. One reason is the developed ecosystem that has matured in the past year, for example, there is now a parallel universe of decentralized finance protocols so coin holders can lend out and earn yield.
Whether the current crypto crash is an opportunity for you to decide. Right now, if I was going to be in crypto, I’d want to make sure I was investing in digital currencies that will survive. Ethereum fits that mold. But at times like this, it’s important to remember that there are no guarantees.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.