Year to date, Ethereum has rallied 75,73% while the broader S&P500 index has risen by 8,52%. Ethereum is down 56,94% from its ATH at the time of writing. Nonetheless, it is outperforming most other sectors in traditional financial markets outside of raw materials. Despite Ethereum rallying throughout the year, many worried that the Shanghai hard fork would bring out-of-ordinary selling pressure. Despite worries, this has yet to come to fruition. To clarify, locked ether would now become available for withdrawals (potentially being sold off) after a lock-up period of several years. Most likely, participants who locked their ether up during 2021 sit in the red despite Ethereum gaining ground this year, which has yet to lead them to exit their positions.
Broader outlook into 2023
Like it or not, cryptocurrencies correlate significantly with equities. According to a recent study from Georgetown University, the correlation has increased over time. In other words, what happens in the stock market will also determine the faith in cryptocurrencies and Ethereum this year.
Mike Wilson, Chief Investment Officer for Morgan Stanley and named the world's best strategist earlier this year, stated: "Investors seem to have forgotten the cardinal rule: "Don't fight the Fed." With the Federal Reserve determined to fight inflation and keep interest rates "higher for longer," Bank of America also voiced their concern around the same time as Wilson that the increasing interest rates from the Fed "always breaks something." Norwegian stock market commentator Karl Johan Molnes already concluded last year how the markets would move going forward with history as the judge: "Inflation will plummet, growth will plummet, and then markets plummet. Cut in interest rates and QE happens after the stock market has crashed, and then you will lie curled up in bed wondering what happened".
Despite this, emerging fears about the traditional banking sector have resulted in outside investors looking to different assets such as Ethereum and other major cryptocurrencies. The collapse of Silvergate, the bail-out of Credit Suisse, and fears about the future of Deutsche Bank enabled Ethereum to take hold as a legit alternative to traditional investments. More eyes could turn to Ethereum should the banking sector be put under even more stress in the future. An important reminder is that the preliminary unrest in the banking sector is not due to loan defaults. If the default rates were to increase significantly, many investors would wake up with nightmares from 2008, and this must be considered together with the fact that Ethereum does correlate with the stock market. A crash in the global financial market would likely impact Ethereum as well. However, the ecosystem surrounding Ethereum is expanding every day, which should have a positive overall effect on Ethereum.
This text is intended to inform and is not an investment recommendation.