Environmental protection and supervision have blocked the "institutional bull" of cryptocurrency. Can Ethereum expect it?

text

Editor of this issue | Colin Wu

Different people have different opinions on whether the bull market has reached the middle of the bull market or whether it is a transition between bulls and bears.

In the live broadcast of Shenyu and Sun Yuchen on May 20, it was obvious that their confidence was not that high. In the live broadcast at the end of 2020, Sun Yuchen, Jiang Zhuoer and others all shouted 100,000 US dollars with full confidence. But in yesterday’s live broadcast, Sun Yuchen adjusted it to 50,000 to 100,000 US dollars, and Shenyu adjusted it to a more conservative 30,000 to 100,000 US dollars. They said that there is a high probability that it is still bullish, similar to June 2017, when the price of the currency fell due to the split of the Core community and the blood sucking of EOS.

At the same time, they all believe that Musk is an important reason for the decline in this round of bull market. Sun Yuchen believes that Musk’s back and forth has led to confusion in community value, which is the core reason for the decline; Shenyu believes that it is the fuse. In addition, Wu Jihan believes that a "violent bull market" is coming, and he agrees with Jiang Zhuoer and others that "the bull is in the middle". But more relatively conservative industry leaders believe that it is necessary to wait and see.

Our views on this vary. We believe that Musk's attack on Bitcoin's environmental issues has a relatively significant impact. It is undeniable that this round of bull market can be referred to as "institutional bull" for short. Grayscale set off the first wave, Microstrategy and others relayed the second wave, and Musk and Tesla spent $1.5 billion to buy Bitcoin, which is the third wave.

Chinese people may not be able to understand the "political correctness" of environmental protection in Western society. Musk suddenly turned back and chattered around this issue. He retweeted the FT report again yesterday: "This is a dirty currency." This article is quite headlined, saying that the current clean energy usage rate in the mining industry is 39%. Although this is already a not low number and it continues to increase, Musk is still unsatisfied.

Environmental protection is a political issue similar to gender and race in Western developed societies. Musk's "strike hard" has resulted in large Internet companies (such as Apple, Microsoft, Amazon, and Netflix), mainstream social celebrities (such as those who once expressed Rowling, etc.), entertainment stars, it is difficult to publicly announce support for Bitcoin or even buy Bitcoin. It is not an exaggeration to say that it has dealt a serious blow to Bitcoin's nascent "institutional bull" and positive influence in popular culture.

In the foreseeable future, Bitcoin's new energy utilization rate will gradually increase, and eventually reach a ratio of more than 60%. However, the total amount is still huge. Fossil energy in Central Asia, the Middle East and other places is extremely rich, stable and cheap, and it is difficult to persuade them to give up. Therefore, it is also difficult for us to expect the environmental protection issues of Bitcoin to be resolved in the way Musk hopes.

Another driving force of this round of bull market is the rise of Ethereum’s DeFi ecosystem, and the subsequent public chains of exchanges such as the second layer, Polkadot, Solana, and BSC. This involves the second issue of this round of bull market: the threat of regulation.

In the early hours of May 21, Beijing time, a report from the U.S. Department of the Treasury attacked cryptocurrency tax evasion and called for stronger supervision, triggering a sudden drop of more than 6% in Bitcoin. But then, as more details of this report were explained, such as the implementation of the reporting system in 2023, and the current rules for US dollar cash, etc., the price began to pull back after the panic reduced.

But what is certain is that the current ruling U.S. Democratic government must have a relatively conservative attitude towards financial regulation and cryptocurrencies, and is more inclined to protect the interests of grassroots investors rather than financial innovation. Binance is already under investigation by almost all currency-related departments in the United States. On the other hand, the European Union, South Korea, Turkey, Vietnam and other regions where cryptocurrencies are active, regulatory policies are still being introduced one after another, and the current "Wild West" stage cannot continue.

And DeFi is the wildest part of cryptocurrency. It is the purest state of financial freedom, and it also conforms to the decentralization of cryptocurrency fundamentals. However, a large amount of black money, hacker attacks, and underground transactions are all carried out through DeFi. When it gradually grows, will it attract the attention of the US government and other governments? This is also inevitable.

Another reason for this round of decline is Chinese regulatory policies. China’s current attitude towards cryptocurrencies is very clear: first, prohibit all institutions from participating, call on ordinary people not to participate, and block payment channels; second, beware of social fanaticism and group incidents. Therefore, it can be seen that after the zoo became popular recently, the three associations under the central bank immediately issued a warning.

A new phenomenon is that since China set a political goal of carbon neutrality for the world last year, the domestic mining industry may be severely hit. At present, a large number of Inner Mongolia has been cleared, and other regions are still in the research stage. The transfer of the mine has little effect on the price itself, but more of a panic on the emotions of Western society.

On the whole, we believe that the two core forces of the current round of bull market have been hit to a certain extent, so it is difficult to be optimistic about the "continuation of the big bull market". The only variable lies in Ethereum, that is, a large number of views previously believed that the market value of Ethereum surpassed Bitcoin in this round and became the new engine of the bull market. In July, Ethereum EIP-1559 will solve the problem that Ethereum cannot capture value from the ecology and increase prices. When the gas fee skyrockets, there will be a huge amount of burning in Ethereum, which will greatly increase the price. On the other hand, Ethereum developers are making every effort to move from POW to POS at the end of the year. After the POS is completed, it will save 99% of the current energy, and there will be no environmental problems at all.

However, this is just a good expectation of the industry. There are still too many variables in Ethereum, and it is far less stable and strong than Bitcoin. At that time, new problems will surely arise, such as the above-mentioned DeFi regulatory issues.