Ethereum keeps crashing -18.5% in 3 days!

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Ethereum took a hit this week despite the successful activation of The Merge and the move to Proof of Stake. The asset has withdrawn 18.5% in just three days.

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Ethereum Crashes After The Merge

It’s been a great week for Ethereum – still one of the worst for ETH in a long time.

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Despite the success of the long-awaited Ethereum merger, in which the network has been flawlessly transferred to Proof, the native cryptocurrency network, ETH, has corrected by 18.5% in the last three days alone. It is now trading at $1,430.

Today, ETH is down 1.35%, falling to a low of $1,416 early Friday afternoon. The second largest cryptocurrency by market cap appears to be on the verge of breaking down from $1,400, a low not seen since late July.

The week started very differently for ETH, which briefly surpassed $1,780 on Sunday’s high expectations for the merger. However, two events probably changed this trend.

On Tuesday, the US Bureau of Labor Statistics released its latest consumer price index (CPI) figures. They show continued high inflation in August.

This news – which is likely to cause the US Federal Reserve to raise interest rates again to fight inflation – immediately triggered a huge sell-off in the stock market and a corresponding drop in the value of cryptocurrencies. Including Bitcoin and Ethereum.

On the back of the CPI news, the value of ETH fell 8.9% to $1,584.25 in a few minutes on Tuesday.

Two days later, early Thursday, The Merge performed without errors and successfully ushered in Ethereum’s proof-of-concept era. It forever changed the way ETH is generated and the way transactions are validated on the Ethereum network.

Ethereum without mining in the future

Ethereum has now done away with crypto mining on its network and introduced staking instead. This gives ETH holders an incentive to pledge their assets to the network in exchange for passive income.

Despite the success of the event, ETH prices began to decline shortly after. In the hours following the merger, ETH fell another 8% to $1,485.

The reason? Some drop in ETH price was expected after The Merge. The reversal of ETH futures and options indicated that traders are preparing to sell right on the event (“buy the rumor, sell the news”), according to data from Glassnode in early August.

Common in financial markets, this tactic refers to buying an asset when hype is driving its price in anticipation of a major event that could increase its value. The asset is then sold as soon as the event occurs to take short-term profits.

The Ethereum liquidation peak was 127 million

In fact, in the hours following the merger, traders liquidated over $127 million worth of ETH. In doing so, they drove down the value of the cryptocurrency.

While analysts expected some of this activity, SEC Chairman Gary Gensler’s statement on Thursday may have accelerated the amount of selling. According to Gensler, proof-of-concept cryptocurrencies like ETH could be considered securities and regulated.

While the merger appears to have had a negative impact on the value of ETH in the short term, Ethereum’s move to this consensus mechanism has also attracted interest from traditional financial institutions.

For example, Bank of America issued a research note on Monday. She suggests that the security and energy efficiency of Ethereum’s new staking model could soon attract interest from large institutional investors.

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