Ethereum has undergone a huge network upgrade called the merger which proponents say will make transactions much more energy efficient. Following the merger, Ether prices fell following a huge surge ahead of the event.
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Ether has fallen more than bitcoin since the cryptocurrency’s underlying technology, the Ethereum network, underwent a huge upgrade called “the meltdown.”
Ethereum is a blockchain technology that effectively allows developers to build applications on it. Ether is the native cryptocurrency that runs on Ethereum.
The merge is an upgrade to Ethereum that changes the transaction validation mechanism from a proof-of-work method to a proof-of-stake. Proponents say this will make validating transactions on Ethereum much more energy efficient. It was eagerly awaited by the crypto community.
Despite the success of the upgrade, ether fell more than bitcoin.
From September 15, when the merger was completed, through Tuesday, Ether is down 15.2%. Bitcoin fell 4.4% over the same period.
Prior to the network upgrade, the price of ether roughly doubled from year-to-date lows in June, far outpacing bitcoin’s gains.
Vijay Ayyar, vice president of business development and international at Crypto Exchange Luno, said the merger was already “priced in” for ether and “the real event was a situation of ‘selling the news’. “”.
Traders are also shifting investments from ether and other alternative digital coins to bitcoin, according to Ayyar, “since bitcoin is expected to outperform for a few months from now.”
Investors are also wondering if ether’s regulatory status could change post-merger after U.S. Securities and Exchange Commission Chairman Gary Gensler indicated last week that cryptocurrencies that operate on the proof-of-stake model, which applies to Ethereum, could be classified as a Security. This would place it under the responsibility of regulators.
Gensler, whose remarks were reported by several media, did not specifically name ether. The proof-of-stake model involves investors “staking” or locking up their ether and earning returns for doing so.
“For Ethereum, there is another concern: PoS (proof-of-stake) cryptography may be subject to SEC scrutiny,” said Yuya Hasegawa, crypto market analyst at the Japanese crypto exchange. Bitbank.
Rate hikes still in focus
Crypto investors are also on the lookout for a interest rate hike expected by the US Federal Reserve this week.
Central banks around the world have raised interest rates to deal with runaway inflation. But it hurt risky assets such as stocks. Cryptocurrencies have been closely correlated with US stock markets, especially the tech-heavy Nasdaq. With stocks remaining under pressure, the crypto also felt the heat.
Inflation in the United States in August was higher than expected, which affected equities and crypto.
“From a macro perspective as well, inflation rose and therefore caused a sell-off in all markets, but ethereum and altcoins sold harder given that they are in the lower end of the market. riskiest part of the crypto spectrum,” Ayyar said. .
Bitcoin has been trading in a range of around $18,000 to $25,000 since June, a level at which investors are buying, according to Ayyar.
But any “change in the macro environment in terms of interest rate surprise inflation is certainly concerning,” he said, adding that if bitcoin falls below $18,000, the crypto- currency could test levels as low as $14,000.