Despite heavy losses in Ethereum last month, the digital asset markets are thriving so far in the fourth quarter, buoyed by a wave of venture capital investment and signs of a friendly regulatory environment.
Ethereum had a double-digit decline in September, which may have been caused by investors concerned over “hard or imperfect regulation” hamstringing centralised finance (DeFi) market growth, according to Matt Hougan, chief investment officer at Bitwise Asset Management.
But, Hougan expressed an optimistic outlook about Ethereum long-term.
‘We need to see continued growth in the NFT, DeFi and Web 3 markets, and constructive activity out of regulators," Hougan said. "Fortunately, that looks to be happening."
It’s best to put September’s pullback in context. Despite a double-digit drop, from a long-term perspective, Ethereum’s return has been “amazing,” up about 1,000% in the past year, Hougan said, adding that cryptocurrency is best evaluated as a long-term investment.
“There is nothing in September's move that changes the long-term story for Ethereum. Ethereum is the base layer on which DeFi, NFTs, Web 3.0, and other important sectors of the crypto market are being built. Those markets are thriving today,” he said.
This week, Federal Reserve chair Jerome Powell and Securities and Exchange Commission chair Gary Gensler came out with comments clarifying that US regulators do not intend to follow China and ban crypto, but rather develop effective regulatory frameworks for the space.
A regulatory framework will help “clip the tail outcomes from a regulatory perspective and has brought investors back into the market,” Hougan said.
September’s double-digit decline may have been caused by investors concerned over “hard or imperfect regulation” hamstringing DeFi market growth, a substantial portion of which is built on Ethereum.
“Saber-rattling from multiple US regulations put those concerns front and center and contributed to Ethereum's pullback,” he said.
Regulatory concerns may get resolved in a reasonable time within the next year, Hougan said. If that happens, things look very positive for cryptocurrency.
Ethereum dropped 13% in September, the second-largest decline since June when it sank 16%. Bitcoin also fell 7% last month.
The decline came a month after Ethereum surprisingly divided into two separate chains after a hacker exploited a bug in the software.