Ethereum Continues to Sink Post-Merge: Down 18.5% in 3 Days

It’s been a great week for Ethereum—and yet one of the worst in a while for ETH. 

Despite the success on Thursday of Ethereum’s much-anticipated merge, which saw the network flawlessly transition to proof of stake, the network’s native cryptocurrency, ETH, has plummeted some 18.5% in the last three days alone, to $1,419.07 at writing. 

ETH is down 5.6% today, hitting a low of $1,416.57 early Friday afternoon. The second-largest cryptocurrency by market capitalization appears close to breaching $1,400, a low not seen since late July.

The week started on a much different note for ETH, which, flying high on lofty expectations for the merge, briefly surpassed $1,780 in value on Sunday. 

Two events likely changed that trajectory. 

On Tuesday, the U.S. Bureau of Labor Statistics released its latest Consumer Price Index (CPI) figures, which indicated the stubborn persistence of high inflation into August. The news—which will likely lead to the Fed once again raising interest rates to combat inflation—immediately triggered a massive sell-off in the stock market, and a corresponding drop in the value of cryptocurrencies, including Bitcoin and Ethereum.

Off the CPI news, ETH’s value fell 8.9% in a matter of minutes on Tuesday, to $1.584.25.

Two days later, on early Thursday, the merge executed flawlessly, successfully ushering in Ethereum’s proof-of-stake era and forever changing both the way ETH is created and how transactions on the Ethereum network are validated. Ethereum has now done away with the energy-intensive process of crypto mining on its network, and instead introduced “staking”—which incentivizes ETH holders to pledge their assets to the network in exchange for passive yield.

Despite the event’s success, ETH’s price almost immediately began to plummet shortly thereafter. In the hours following the merge, ETH dropped another 8%, to $1,485.

Why? Some drop in ETH’s price was anticipated following the merge. ETH futures and options backwardation indicated, going into the event, that traders were preparing to “buy the rumor, and sell the news” of the merge, according to data from Glassnode in early August.

The tactic, common in financial markets, refers to the act of buying an asset as hype pushes its price upwards in anticipation of a major event that could increase its value, then selling it off as soon as the event occurs, to make away with short-term gains. 

Ethereum Liquidations Top $127M Amid Post-Merge Volatility

Indeed, traders liquidated over $127 million worth of ETH in the hours following the merge, driving the cryptocurrency’s value downward. While some of that activity was expected, the degree of the sell-off could have been further accelerated by SEC chair Gary Gensler’s statement on Thursday that proof-of-stake cryptocurrencies like ETH could be considered and regulated as securities. 

While in the short term, ETH’s value appears to have been negatively impacted by the merge, Ethereum’s transition to a more environmentally-friendly consensus mechanism has also attracted the interest of traditional financial institutions.

On Monday, Bank of America released a research note indicating that the security and energy efficiency of Ethereum’s new staking model could soon attract the interest of major institutional investors.

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

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