Why Is Ethereum Dropping? – Ethereum Merge Aftermath

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As the world gets into a global recession, cryptocurrencies continue to lose their value. Similarly, even stocks are experiencing decreases in value. Although this recession was expected by most experts, tons of people are experiencing devastating losses. This instills fear in the market, resulting in people getting out of the market and causing the prices […]

The post Why Is Ethereum Dropping? – Ethereum Merge Aftermath appeared first on Crypto Academy.

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As the world gets into a global recession, cryptocurrencies continue to lose their value. Similarly, even stocks are experiencing decreases in value. Although this recession was expected by most experts, tons of people are experiencing devastating losses. This instills fear in the market, resulting in people getting out of the market and causing the prices to go further down. One of the most significant and promising cryptocurrencies, Ethereum, is one of the victims of panic selling. In just 24 hours, Ethereum lost 10% of its value. This comes after the long-awaited merge happened on the 15th of September. Luckily, the merge was a success, and Ethereum successfully migrated from a Proof-of-Work (PoW) network to a Proof-of-Stake (PoS) network. 

This upgrade on the network made Ethereum perfect for day-to-day transactions. Moreover, people call Ethereum “ultra-sound money” now because of its high efficiency. With fast processing speed and very cheap gas fees, transactions on Ethereum are as seamless as ever. With the migration from PoW to PoS, Ethereum became one of the most environmentally friendly cryptocurrency networks. Today, Ethereum’s network consumes 99.80% less energy than it did before the merge. This is likely to attract huge investors that previously held back because of the high energy consumption of Ethereum’s miners. 

Why Is Ethereum Dropping?

But why is Ethereum dropping? Why Ethereum is going down? First, we must note that the drop has nothing to do with the Ethereum merge. As the whole market has been declining this year, the same is happening to Ethereum. The cryptocurrency market is considered a risk-on market, and just like every other crypto, Ethereum is a risk-on asset. These assets are among the first ones to be liquidated by investors in the event of a recession, as we are experiencing now. 

The Federal Reserve (FED) is working on strengthening the US dollar as much as possible. As of today, they have done a good job, but the expenses are heavy for many investors. The more liquidity the FED takes out of the markets, the less liquidity there is for risk-on assets.

As bad as everything may sound, the crypto market is known to bounce back. As the global economy begins to recover, so will cryptocurrencies. These things move in cycles. We have ups and downs throughout the road, but the cycles are always there. We are on a bear cycle, meaning we will see more decreases than increases. Ultimately, even a huge improvement on the biggest DeFi platform cannot disturb such cycles. Now, everybody has turned their eyes towards the next Bitcoin halving, hoping it will mark the beginning of a new bull market. By the time the next halving happens, the world economy is expected to start recovering. 

Ethereum Price Today

At the time of writing, Ethereum is trading at just above $1,400. This is approx. 9% lower than 24 hours ago, when it was trading for $1,500. As we mentioned before, the price of Ethereum saw an increase of more than 35% at the beginning of June, when the official Merge date was announced. At that time, Ethereum was trading at $990. In the second week of August, Ethereum reached a trading value of $2,000, doubling its price in a span of 2 months. In the previous weeks, however, Ethereum has continuously lost its value, dropping by 3%-7% multiple times per week. 

Despite the volatility, Ethereum is still the second biggest cryptocurrency, with a market capitalization of $175 billion. It has an average daily trading volume of $18.5 billion.

Why ETH is Falling?

There are many reasons why ETH is losing value. We mentioned most of the reasons above, and we are sure that the merge has nothing to do with it. An upgrade that fundamentally improves the network will not likely negatively impact its market performance. However, though, as the hard fork for Ethereum (Ethereum PoW) takes place, some investors might begin to move their capital out of Ethereum and into Ethereum PoW. It is still not clear what will happen to this alleged hard fork.

Frequently Asked Questions (FAQ)

Why Have Bitcoin and Ethereum Dropped so Much?

The cryptocurrency market finished another bull cycle back in 2021. Naturally, a bear cycle follows after a bull cycle. Keeping in mind that Ethereum and Bitcoin are the biggest cryptos in the market, it is only logical that they will suffer price decreases during a bear cycle. Although fear dominates the market, the crypto market is holding steady, with no new all-time lows for major cryptocurrencies.

Will Ethereum Go Up?

Soon enough. We believe that Ethereum has the potential to break all kinds of records. After the successful migration from PoW to PoS, Ethereum is likely to start setting new trends. The team promised a highly efficient network, and they delivered. If this continues, major corporations and companies looking for a way to get into Web 3 and the Metaverse are more likely to do it through Ethereum. Being the first smart-contract compatible cryptocurrency, Ethereum is paving the way for other altcoins. 

Is Ethereum 2.0 Better?

Yes. Ethereum 2.0 is better in every way. Some people believe that PoW is better than PoS. Nonetheless, no statistic supports such a statement. The Proof-of-Stake that Ethereum is currently uses makes the network extremely fast and solves most of the scalability issues that Ethereum was facing before the upgrade. It has been a day since the migration happened; therefore, we are still not sure whether Ethereum 2.0 will prove to be consistent in what it is supposed to deliver. To wrap this up, we should give Ethereum 2.0 some time in the mainnet before we come up with detailed evaluations.

Takeaways

  • Ethereum lost 10% of its value in the first 24 hours after the merge.
  • The merge is a long-awaited event where Ethereum migrated from a Proof-of-Work (PoW) to a Proof-of-Stake (PoS) mechanism.
  • The merge was announced way back. However, the exact dates were revealed earlier this year, in June.
  • There are many reasons why Ethereum is losing value. Of course, the post-pandemic economy, the conflict in Ukraine, and the global recessions are among the biggest reasons.
  • The price of Ethereum has been dropping recently. At the time of writing, Ethereum is trading at a price of around $1,400 with a market cap of $175 billion.

 

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