Ethereum Dug its Own Grave and is Pulling the whole Crypto Market with It

With Ethereum's update to proof-of-stake, the network has drastically reduced the amount of new ETH issued with every block.

It's been a week since the most anticipated Ethereum Merge took place. From celebration to regret, these seven days have been a rollercoaster ride for crypto investors. The world's second-largest blockchain successfully transitioned to Proof of Stake after a painstaking eight-year development process. But on Monday, investors woke up to the token's price at its lowest point since July. While Ethereum had climbed back to over US$1,700 in September, it's now around US$1,330, amounting to more than a 20% drop. Not just ETH but other major cryptocurrencies like Bitcoin, Dogecoin, Solana, Cardano, etc. witnessed the drop. So, did Ethereum dig its own grave with the Merge and pull the entire crypto market with it?

On-chain data shows that funding rates for ETH are still negative. Funding rates represent payments between buyers and sellers of futures contracts. When rates are negative, sellers are likely driving the market, as they pay buyers (longs) a premium while remaining short. Funding rates can often be used to measure market sentiment.

Data from crypto futures markets shows that many investors appear to have closed out hedged positions in the hours after the Merge went through – a sign that they are wrapping up trades they had made during the previous month or past few weeks to bet on possible outcomes of the event – including the possibility of a revolt by crypto miners who want to keep working on a "proof-of-work" system similar to Bitcoin's, which Ethereum used until early Thursday.

The market might experience some volatility as large players unwind their "Merge" positions. QCP Capital concluded: Longer-term the ETH POS should be bullish, but we are not expecting an immediate breakout move post-merge. We are anticipating a huge pressure on the ETH vols post-merge.

Investors who rode ETH's rally going into the Merge may have sold their positions. "Large liquidations of leveraged long positions across derivatives markets exacerbated the drop in spot prices," according to a report from crypto data firm Kaiko that attempted to explain why ETH has fallen so much after the Merge.

So what happened after the merge?

Unfortunately for many, the first narrative appears to be in play. From its local high of around $2,000, the Ethereum price has plummeted 25%, with a 10% loss in one day on the day of merge completion.

For the long term, this is no negative consequence as the success of the merge is extremely positive for the adoption of blockchain technology, particularly Ethereum. Over 99% more carbon-friendly, institutional buy-in to the ETH token in the next bull market is far more likely. This gives the potential market capitalization of Ethereum much more room to grow as ultimately it is institutions and 'whale' accounts that move the market price action.

In the immediate term, this price action has been a sorrowful reminder that we are still in a bear market and that wider market sentiments are still extremely bearish.

Analysts have not gathered a consensus as to whether we have hit the bottom of the bear market yet, or if more red is in order. But what all analysts agree on is that bear markets, particularly bear markets towards their end, are the perfect time to start accumulating your crypto projects for the bull market.

Ethereum's shift to the PoS network will be a blessing.

Experts claim that for ordinary investors, the Merge should mean nothing. Ideally, investors have been excited about the upgrade because it is only supposed to help crypto prices surge and change the price dynamics of the market. Quicker transactions and lower fees might eventually benefit investors in the long term, but it would also add more value to Ethereum's native token, ETH, which investors can use to make transactions across multiple platforms. The integration of the PoS is helping the crypto add more investors to its network, besides when the supply of tokens decreases, the value of individual coins will increase, which might then generate some value for traders. The Merge is also expected to make the network more secure, protecting investors from random attacks and thefts.

However, the emergence of the Merge does not mean that Ethereum is no more volatile. Right after the launch of the Merge upgrade, the ETH price dropped. The Merge will definitely have a positive effect on the price of Ethereum, but those effects might not be longstanding, and the price upside will definitely not be sustainable. Hence, investors still have to be extremely careful before investing in Ethereum and other cryptos.

So, is it the right time to buy Ethereum?

Based on expert perspectives, Ethereum 2.0 is supposed to establish a stronghold for the crypto in the DeFi and Web 3.0 industry, leaving little room for Bitcoin to reign as the largest cryptocurrency in the world. There are plenty of assumptions revolving around the market that depict the Merge upgrade will fail to appease investors, but its current price rally proves quite otherwise. According to Hayes, ETH is currently providing massive investment opportunities for buyers, hence, now will be a good time for investors to buy and hold the token to generate massive amounts of profits in the future.