Since the Ethereum network, the technology that underpins ether and other cryptocurrencies, underwent a significant upgrade known as the merge, ether has declined more than bitcoin.
Blockchain technology called Ethereum makes it possible for programmers to create apps on top of it. The native cryptocurrency used by Ethereum is called Ether.
The merge is an upgrade to Ethereum that switches the proof-of-work method for transaction validation to a proof-of-stake method. According to supporters, this will significantly increase the energy efficiency of validating transactions on Ethereum, which has been eagerly anticipated by the cryptocurrency community.
Ether has decreased by about 15% since September 15, when the merge was finalized, to about 4:30 a.m. ET on Tuesday. In the same time frame, Bitcoin has decreased by about 3%.
Before the network upgrade, the price of ether had nearly doubled from the year’s low point in June, outpacing bitcoin’s gains by a significant margin.
The merger was already “priced in” for ether, according to Vijay Ayyar, vice president of corporate development and international at the cryptocurrency exchange Luno, and the “actual event was a’sell the news’ situation.”
Ayyar claims that traders are also transferring funds back into bitcoin from ether and other alternative digital coins because they “expect that Bitcoin will outperform for a few months from now.”
Since U.S. Securities and Exchange Commission Chair Gary Gensler suggested last week that cryptocurrencies that operate on the proof-of-stake model, which applies to Ethereum, could be classified as securities, investors are also speculating about how the regulatory status of ether may change following the merger. It would then fall under the regulatory authorities’ purview.
Gensler did not specifically mention ether in his remarks, which were covered by numerous news organizations. Investors “stake” or lock up their ether in the proof-of-stake model in exchange for rewards.
“For Ethereum, there is another concern: PoS (proof-of-stake) crypto may fall under SEC’s scrutiny,” said Yuya Hasegawa, crypto market analyst at Japanese crypto exchange Bitbank.
Investors in cryptocurrencies are also nervous as a result of the U.S. Federal Reserve’s anticipated increase in interest rates this week.
To combat the raging inflation, central banks around the world have been raising interest rates. However, this has hurt risky assets like stocks. With the tech-heavy Nasdaq in particular, U.S. stock markets have shown a strong correlation with cryptocurrencies. Crypto has also been affected by the pressure on stocks, which is still present.
Unexpectedly high U.S. inflation in August hurt stocks and cryptocurrencies.
“From a macro perspective as well, inflation did come in higher, and hence caused a sell off across all markets, but ethereum and altcoins did sell off harder, given they’re along the more risky part of the crypto spectrum,” Ayyar said.
Since June, the price of bitcoin has fluctuated between $18,000 and $25,000, a level at which investors are reportedly investing.
He added that if bitcoin drops below $18,000, the cryptocurrency could test levels as low as $14,000. He added that any “change in the macro environment in terms of inflation or interest rate surprises, is definitely cause for concern.”
(Adapted from CNBC.com)