After undergoing the historic Merge upgrade, the value of Ethereum (ETH) has continued to correct despite the event being touted as bullish for the asset’s price. The drop comes after the second-ranked cryptocurrency by market cap exhibited signs of rallying despite the prevailing depressed market conditions.
In particular, by press time, Ethereum was trading at $1,360, a drop of about 15% from the $1,600 price recorded on September 15 when the Merge upgrade was officially rolled out.
The impact of the Merge anticipation saw Ethereum surge by about 85% from June, when the price appeared to stagnate.
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Interestingly, Ethereum’s performance dwarfed Bitcoin (BTC) before the Merge, which has since struggled to stay above $20,000. However, after the upgrade, Bitcoin only dropped by about 3%.
Crypto research platform Kaiko noted:
“In what many expected to be a positive week for the price of ether, a successful Merge ended up preceding a significant sell-off of roughly 25% on the week.”
In this line, several factors have been fronted as the key triggers for Ether’s drop, with a majority classifying the Merge as a ‘buy the rumor, sell the news’ event.
For instance, Meltem Demirors, the chief strategy officer of crypto asset management company CoinShares, had projected that investors should not expect a significant rally in Ethereum, noting that prevailing market conditions with high inflation might deter capital inflow into the decentralized finance (DeFi) crypto.
Impact of the Fed policies
Like other risky assets, Ethereum faces the impact of the Federal Reserve’s policies to tame inflation. After the disappointing August inflation data, the Fed is expected to increase interest rates, with digital assets likely to react negatively.
“From a macro perspective as well, inflation did come in higher, and hence caused a sell-off across all markets, but Ethereum and altcoins did sell off harder, given they’re along the more risky part of the crypto spectrum,” said Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno.
Similarly, it can be argued that the inability of Ethereum to rally after the Merge is due to the pending related upgrades yet to take effect. In particular, the network is gearing up for the Shanghai upgrade set to introduce fundamental changes in the blockchain’s Ethereum virtual machine functionalities.
Consequently, as reported by Finbold, cryptocurrency exchange Kraken announced ETH unstaking would remain unavailable until the Shanghai upgrade is over.
The Merge’s long-term impact
In the long term, there are projections that the Merge will trigger a rally in Ethereum primarily powered by institutional input. However, with the prevailing macroeconomic factors, it appears institutions are expressing caution.
The possibility of a price rally also stems from the fact that the Proof-of-Stake (PoS) switch will make Ethereum a deflationary asset since it will likely limit the number of new tokens issued. It is worth pointing out that the Merge proceeded successfully without any hitches, helping alleviate any earlier concerns.
In this line, Antoni Trenchev, the co-founder of crypto lending platform Nexo, stressed that there is no guarantee the upgrade will inspire a rally in Ethereum’s (ETH) price because it would depend on its transition success.
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