Ethereum has been one of the top performing cryptocurrencies this year, but it seems to be losing steam. Over the last 24 hours, ETH is down almost 9% while the rest of the market is only down 3%. This could be a sign that Ethereum is in trouble.
There are a few possible reasons for Ethereum's recent drop. One is that the hype around Ethereum 2.0 is finally starting to die down. The long-awaited Ethereum merge has come and gone, and it appears to have been a success from a technical perspective. The network shifted to a new consensus model called proof-of-stake, and so far there have been no major issues reported.
However, it seems that not everyone is as bullish on Ethereum as they were before the merge. Additionally, it's still early days, and it's possible that sentiment will improve as the benefits of proof-of-stake become more apparent. For now, though, it seems that Ethereum's post-merge honeymoon period might be a little bit shorter than expected.
In a report in early August, crypto analytics firm Glassnode flagged data on derivatives exchanges that indicated that the ETH merge was shaping out to be a "sell the news" event. This was based on the large number of open interest contracts that were liquidated on the day of the event.
Traders appear to be utilising call options to bet on the ETH price into September, whilst futures and options backwardation indicate an expectation to sell-the-news is in play, Glassnode researchers wrote in a report at the time.
The merge is expected to be a positive development for the Ethereum community, with many believing it will lead to increased adoption of the cryptocurrency.
The hype around the merge appeared to be generating bullish sentiment around Ethereum in July, but sophisticated derivatives traders were already hedging their bets, expecting the price of ETH to drop after the event, according to Glassnode.
Bitcoin and Other Cryptocurrencies on the Rise as Ethereum Merge Looms
The Ethereum merge has been highly anticipated in the crypto community, and it was finally completed in the wee hours of the morning on Thursday. Whether it will boost ether’s price or tank it over the long term is pure speculation at this point.
The Fed is essentially attempting to cool down the economy in order to rein in rising prices. Among other things, slowing down the economy is expected to decrease corporate profits and lower investor sentiment, causing further risk aversion in the market. All of this has the effect of causing crypto prices to tumble.
When the Federal Reserve announces a rate increase, bitcoin's price usually drops. This pattern has played out repeatedly this year. In June, when the Fed announced its third rate increase of 0.75 percentage points, bitcoin's price dropped from above $22,000 to below $17,500.
There are a few possible explanations for this pattern. One is that higher interest rates make other investments, like bonds, more attractive relative to bitcoin. Another is that higher rates increase the cost of borrowing money to buy bitcoin, making it less attractive.
Of course, it's important to keep in mind that the Fed is just one factor that can impact the crypto markets. There are still plenty of other factors that could send prices soaring again.
While there is no sure way to predict the future, according to Kruger, his expectation is that there is still potential for one more healthy dip, possibly down into the $10,000 area, before the market is then finally supported ahead of the next big run towards a retest and eventual break of the record high from late 2021.
