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Ether (ETH) falls 15% since Ethereum merge as traders take profits

Ethereum underwent a huge network upgrade called the merger, which proponents say will make transactions much more energy efficient. After the merger, airtime prices have fallen after a huge rise in the run-up to the event.

Jakub Porzycki | Nurphoto | Getty Images

Ether has fallen more than bitcoin since the cryptocurrency̵[ads1]7;s underlying technology, the Ethereum network, underwent a huge upgrade called the merger.

Ethereum is a blockchain technology that effectively allows developers to build apps 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 validation mechanism for transactions from a proof-of-work method to proof-of-stake. Proponents say this will make validating transactions on Ethereum much more energy efficient and has been eagerly awaited by the crypto community.

Despite the upgrade being successful, ether has fallen more than bitcoin.

Since September 15, the date the merger was completed, to around 4:30 a.m. ET on Tuesday, Ether is down about 15%. Bitcoin has fallen around 3% over the same period.

Ahead of the network upgrade, the price of ether roughly doubled from this year’s low in June, far outstripping bitcoin’s gains.

Vijay Ayyar, vice president of corporate development and international at crypto exchange Luno, said the merger was already “priced in” for ether and “the actual event was a ‘sell the news’ situation.”

Traders are also shifting investments from ether and other alternative digital coins back to bitcoin, according to Ayyar, “since the expectation is that Bitcoin will outperform for a few months from now.”

What is the Ethereum Merger?

Investors are also wondering whether the regulatory status of ether could change after the merger after US Securities and Exchange Commission Chairman Gary Gensler indicated last week that cryptocurrencies that operate on the proof-of-stake model that applies to Ethereum could classified as a security. That will bring it under the remit of the regulators.

Gensler’s, whose comments were reported by several news outlets, did not specifically mention ether. The provision-of-stake model involves investors “staking” or locking up the ether and earning a return for doing so.

“For Ethereum, there is another concern: PoS (proof-of-stake) crypto could fall under the SEC’s scrutiny,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.

Price increases still in focus

Crypto investors are also on edge ahead of an expected interest rate hike from the US Federal Reserve this week.

Central banks around the world have raised interest rates to deal with rampant inflation. But it has hurt risky assets like stocks. Cryptocurrencies have been closely correlated with US stock markets, particularly the tech-heavy Nasdaq. With stocks still under pressure, crypto has also been feeling the heat.

Inflation in the US in August was higher than expected, which hit stocks and crypto.

“Also from a macro perspective, inflation came higher, therefore causing a sell-off across all markets, but ethereum and altcoins sold off harder, given they are along the riskier end of the crypto spectrum,” said Ayyar.

Bitcoin has traded in a range of around $18,000 to $25,000 since June, a level where investors are buying in, according to Ayyar.

But any “change in the macro environment in terms of interest rate surprise inflation is definitely cause for concern,” he said, adding that if bitcoin falls below $18,000, the cryptocurrency could test levels as low as $14,000.

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