Cryptocurrency prices were off on Monday, August 15, as investors and analysts turn to their attention to Ethereum's coming Merge.
Bitcoin, the most popular cryptocurrency, was down 2.4% to $23,975.68 at last check, according to CoinGecko, while ether slipped nearly 1% to $1,882.88, and dogecoin dropped 1% to $0.075312.
'Most Hated Rallies'
Frank Corva, senior digital assets analyst with Finder, said that Raoul Pal, chief executive of the financial-education platform Real Vision, tweeted last week that the recent month-long rally in risk-on assets like tech stocks and crypto is “one of the most hated rallies in quite a few years.”
"What Pal meant by this is that most people are calling this recent push up in price action for risk-on assets a minor – and soon to be short-lived – bullish trend in an otherwise macro bearish environment," Corva said.
"Financial Twitter (FinTwit) and Crypto Twitter (CT) have been filled with sentiment that resembles something of a cross between disbelief and downright vitriol in regard to this recent rally."
Corva said that investors and traders may be traumatized after the past eight months of mostly downward price action in risk-on asset markets. As a result, they may be in disbelief or denial.
"Maybe eight months of downward pressure on markets as a result of the Fed’s engaging in quantitative tightening has fully disconnected risk-on-asset investors from the euphoria they felt from mid-2020 through the latter part of 2021," he said.
"So, the big question now is are we at the beginning of a broader rally in risk-on assets, or do we retrace and test the June 2022 lows for the SPY, the QQQ and most crypto assets, including bitcoin and [ether]?"
The answer to this question, Corva said, lies mostly in whether inflation numbers measured by the consumer price index come down and whether the Fed continues to aggressively hike rates.
"But there’s also a story developing within this macro framework," he said. "Ether – the native asset of the ethereum blockchain – is on the verge of a price breakout as compared with bitcoin."
Ethereum's Final Dry Run
Winston Ma, managing partner of CloudTree Ventures, said that ethereum, the second-biggest cryptocurrency, has recently gained momentum, again approaching $2,000 as it closes in on the Merge, scheduled for mid-September.
Both ethereum and bitcoin, the leading crypto, use blockchain technology to validate and record transactions. But the coming change in the way ethereum operates will have consequences for speed, durability, reliability and accessibility.
Last week, Ma -- author of "Blockchain and Web3: Building the Cryptocurrency, Privacy, and Security Foundations of the Metaverse" -- said, "Ethereum ran its final dry run for the Merge, which will see ether’s underlying blockchain transition from its energy-intensive proof-of-work system to a more efficient model called proof-of-stake."
"Bitcoin lost some ground to ETH in recent years, with its market dominance slipping below 40% from almost 70% at the beginning of 2020," he said.
"This ETH transition is expected to make it faster and more energy-efficient, which may drive ETH’s market capitalization further closer to that of bitcoin as the crypto king."
Cross-Chain Bridges
Meanwhile, David Lesperance, managing partner of immigration and tax adviser at Lesperance & Associates, said authorities are taking a hard look at “cross-chain bridges," which connect independent blockchains and enable assets and information to be transferred among them.
He said the bridges can be a major way for criminals to launder money by sending digital assets across blockchains, bypassing a centralized service that can trace and freeze transactions.
One particular cross-chain bridge called RenBridge has been used to launder at least $540 million in crime-related crypto cash since 2020, according to blockchain analytics firm Elliptic, he said.
"Developers have built cross-chain bridges to let users send tokens from one chain to another," Lesperance said. "Transfers of digital assets between chains rely on darknodes, or networks of thousands of pseudonymous validators. That’s allowed them to become a prime tool for obfuscating crypto cash."
At the same time, he added, for money launderers the bridges are particularly vulnerable to attacks as they hold hundreds of millions of dollars of assets in escrow and multiply their possible vectors of attack by operating across two or more blockchains.
"Recently, a bridge known as Nomad lost almost $200 million in a devastating exploit resulting from a bug," he said. "Within hours, the thieves began using RenBridge to launder the money."
TheStreet has contacted RenBridge for comment.
