Because I’ve been asked this question at recent meetups, on Twitter and on slack, I’ll hazard a guess. Keep in mind I’m not a trader and that I do not even pretend to play one on television.

There are two ways to think about the price of ether. One is that the markets are irrational and populated by degenerate gamblers, in which case you can stop reading now: assume the price is random and that’s that.

The other there may be some correlation between the confidence in the platform and the way the platform delivers on its promises. Let’s look at what could have caused the price of ether to drop slowly but surely during the second half of 2016.

Chart courtesy of the good people at https://www.cryptocompare.com

It’s (almost) been two years

The original roadmap for Ethereum will be two years old in roughly three months time. Many had read into this blog post that we’d be approaching Serenity by now. Instead, we’re inching our way towards Metropolis.

Do you remember “The Bomb,” the programmed mining difficulty increase that would (hopefully) mark the switch to PoS? It’s still ticking, and I’m sure will prove itself to be a great motivator to iterate more rapidly. May 2017 is approaching awfully fast, and ‘defusing’ the bomb by hardforking would probably be interpreted as a failure to deliver on time.

O Web Three, Where Art Thou?

Metropolis was supposed to introduce “a relatively full-featured user interface for non-technical users of Ethereum”, marking the formal launch of Mist, complete with DApp store and “base applications” which could have included a contract registry, reputation system, etc. In essence, the building blocks of Web Three.

Web Three is in my humble opinion what makes Ethereum revolutionary: a genuinely decentralized web, where Dapps are distributed as compressed files over a P2P network, where there are no servers and no possibility of censorship. If an Ethereum fan has ever approached you, eyes widened, arms flailing, talking excitedly as if they’d seen the future, it’s probably because of Web Three, and in particular because of this must watch, inspiring video by Alex Van de Sande:

Mist is under active development but the dapp store, reputation systems and end-user ready content is nowhere to be seen. Instead, Metropolis will instead include EIP 86 (“account security abstraction”), EIP 96 (“blockhash and state root changes”) and “Precompiled/native contracts for elliptic curve operations and big integer arithmetic”.

While Blockchain nerds like myself salivate at the sound of these exciting new improvements, it’s going to get increasingly difficult to keep an audience interested in what ultimately feels more and more like a scientific research endeavor rather than a practical new take on how we interact online.

The Network Effect (or lack thereof)

The Ethereum’s network is not driven by decisions from “on high”. The DAO fork proved this, where a majority voted with their feet for a new chain, while others preferred to use another version. Forking to a new network is only a matter of a majority of users configuring a parameter in their existing clients or switching clients altogether. Considering the breadth of the project, there are relatively few of these clients, and I suspect most — if not all — of these are miners.

In other words, the whole network could move to a different consensus algorithm in the blink of an eye as there is no real network effect to speak of. Ironically, the most common application on this crowdfunded platform is… more crowdfunders (including the rather misguided ‘ICOs”). To date, a Dapp has yet to demonstrate a critical mass of users while exclusively leveraging Ethereum as its foundation.

This, in turn, makes the whole enterprise surprisingly fragile. I’ve often wondered what would happen if a Google or Mozilla suddenly announced some form of native blockchain support: with their backing and connections they could easily onboard several ‘killer’ launch apps, ready for consumption by their billion + user base. In fact, they could probably even copy the inner workings of Ethereum and few would be likely to notice, or care.

Conclusion

As a developer, I don’t play the markets and hold very little crypto, yet my life revolves around building practical applications on the Ethereum platform. Without a shadow of a doubt, Ethereum is years ahead of its alternatives, and that some of the Foundation’s staff displays technical abilities that are quite simply second to none.

You might then wonder about the recent spike in Bitcoin price. Why is BTC so “‘successful”? Outdated, boring Bitcoin which never innovates, bogged down in the quagmire of its often toxic community. Yet, its market cap was nearing $15 billion this morning. Well, this valuation may not be entirely crazy after all. The only “application” of Bitcoin is, ultimately, to be an alternative to FIAT money — something at which it excels, not because of its technical prowess, but simply in terms of sheer adoption. A high price, a high market cap: these not the means to an end: they are Bitcoin’s primary objectives.

Ethereum, on the other hand, has a completely different value proposition and contrasting objectives. The price of Ether, be it $100 or 10 cent, does not affect how easy or how difficult it is to publish Ethereum applications. It doesn’t even affect the cost of interacting with dapps, as it is mitigated by the concept of gas.

As an application developer and end user, Ethereum’s price does not affect me one iota — but conversely Ethereum’s application landscape, toolset, feature set, community, ecosystem, Foundation support and corporate adoption to date are of the utmost importance, all of which can and will affect the price!

It’s a proposition an order of magnitude more complex than Bitcoin, which, when mixed with the heavy speculation common to this industry, leads to a very volatile and unpredictable “crypto-fuel”.