Ethereum Classic (ETC) is not dead but it exposes the inefficient pricing of the crypto market


Yesterday, the ETCDEV announced that they were shutting down due to lack of funding.  The team tweeted that,

“Unfortunately ETCDEV cannot continue to work in the current situation and has to announce shutdown of our current activities.”

The shutdown follows the crash in crypto prices that have significantly devalued crypto prices, pushing Ethereum Classic (ETC) from close to $50 to slightly over $4 at the time of writing. However, ETCDEV has made it clear that this doesn’t mean that Ethereum Classic (ETC) is dead. That’s because there are other teams working on ETC.

For instance, IOHK the company led by Charles Hoskinson also works on ETC.  There is also the ETC Labs, which is pushing hard to bring forth Dapps to the ETC ecosystem. Through the ETC labs, 12 new startups will be building on the ETC blockchain in 2019. Clearly, ETC is here to stay. However, this shutdown of the ETCDEV due to the market crash brings forth one fundamental question, how efficient is the market pricing of cryptocurrencies?

In an efficient market, the financial troubles at ETCDEV would have seen a huge dump in price. However, these news have only led to a slight dip the in the price of ETC. Actually, the dip is not so dissimilar to other cryptos. In fact, it dip can be attributed to Bitcoin’s price drop and not so much to do with ETC. Chances are that if bitcoin were to rally today, ETC too would most likely rally too. This is a highly inefficient pricing mechanism that presents a systemic risk to the entire market for two reasons.

First, if a truly decentralized blockchain like ETC is at risk of losing developers due to financial constraints, how many tokens are under duress in this market, but are only being propped up by Bitcoin (BTC) and speculation? There are lots of tokens in this market that do not have anything going on. Many of them don’t even have any transactions on their networks, and their value is not based on any form of adoption or realistic potential for the same. This means that lots of investors are holding worthless tokens, and once the dominos start to fall, many of them could be going to zero.

Secondly, as the reality of a large portion of the market potentially being worthless begins to sink in, panic selling could kick in. This could have the impact of potentially denting the credibility of the entire market.

With such potentially damaging scenarios, a number of potential outcomes await the crypto market. One of them is an increase in bitcoin maximalism. If the prevailing sentiment points to most cryptos being risky, money could flow into bitcoin (BTC) as the only safe bet. This could see the market consolidate around BTC and kill off a huge portion of the market.

Such a scenario is made plausible by the increased institutional interest in Bitcoin (BTC). It is also made plausible by the fact that bitcoin second layer solutions make Bitcoin highly efficient in doing what most altcoins can do. There is also the possibility that the market could consolidate around a few highly efficient cryptos that are extremely good at what they are designed to do.

Whichever scenario plays out, one thing is clear, there may not be a real need for over 2000 cryptocurrencies in the future. Most of them can’t justify their valuations in the market and will disappear with time.