Ethereum has undergone a massive network upgrade called consolidation which proponents say will make transactions more energy efficient. After the merger, ether prices fell after a significant pre-event rally.
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Ether has fallen further than bitcoin since the underlying technology of the cryptocurrency, the Ethereum network, underwent a massive upgrade called consolidation.
Ethereum is a blockchain technology that effectively allows developers to create applications on top of it. Ether is the original cryptocurrency that runs on Ethereum.
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The merger is an upgrade to Ethereum that changes the transaction validation mechanism from Proof of Work to Proof of Stake. Proponents say this will make transaction validation on Ethereum more energy efficient and the crypto community has been eagerly anticipating it.
Although the upgrade happened successfully, ether has fallen further than bitcoin.
Since September 15, when the merger was completed, as of 4:30 a.m. ET on Tuesday, ether is down about 15%. Bitcoin is down about 3% in the same period.
Ahead of the network upgrade, the price of ether nearly doubled from its yearly lows in June, outpacing bitcoin’s gains.
Vijay Ayyar, Vice President of Corporate and International Development at Crypto Exchange Luno, said the merger had already been “priced” against ether and “the actual event was a “news sell” situation.
Traders are also shifting investments from ether and other altcoins to bitcoin, according to Ayyar, “since the expectation is that bitcoin will outperform a few months from now.”
Investors are also questioning whether the regulatory status of Ether might change after the merger after US Securities and Exchange Commission Chairman Gary Gensler indicated last week that cryptocurrencies running on a proof-of-stake model, which applies to Ethereum, could be classified as security. This would put it under the supervision of the regulators.
Gensler, whose comments were reported by several news outlets, did not specifically name the ether. The Proof of Stake model involves investors “betting” or locking up their ether and earning returns for doing so.
“With regard to Ethereum, there is another concern: PoS (Proof of Stake) crypto may be subject to SEC scrutiny,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.
Focus remains on high prices
Cryptocurrency investors are also on edge ahead of the expected rate hike from the US Federal Reserve this week.
Central banks around the world raise interest rates to deal with rampant inflation. But this hurt risk assets such as stocks. Cryptocurrencies are closely related to the US stock markets, particularly the high-tech Nasdaq. With stocks still under pressure, cryptocurrencies are also feeling the heat.
Inflation in the US in August came in higher than expected, hurting stocks and cryptocurrencies.
“Also from a macro perspective, the inflation rate has gone up, thus causing a selloff across all markets, but it’s harder to sell Ethereum and altcoins, given that they are the riskiest part of the cryptocurrency spectrum,” May said. .
Bitcoin has been trading in a range of $18,000 to $25,000 since June, which is the level at which investors are buying, according to Ayyar.
But any change in the macro environment in terms of amplifying interest rate surprises is certainly cause for concern, he said, adding that if the bitcoin price drops below $18,000, the cryptocurrency could test levels as low as $14,000.