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Why Ether’s Value Has Dropped Since the “Merge”

Why Ethers Value Has Dropped Since the

The world’s second largest blockchain has successfully transitioned to proof-of-stake after a painstaking eight-year development process. (Read more about the significance of the merge here.) But on Monday, investors noted that the token’s price was at its lowest since July. While Ethereum was back above $1,700 in September, it is now around $1,330, down more than 20%.

If the merger was going to solve many of Ethereum’s problems, why is it still falling?

These are some of the reasons for the current recession.

The merger may have a long-term effects, not a short-term.

When Ethereum merged successfully, many of the responding headlines bordered on ecstatic: “Ethereum ‘merge’ will change crypto forever,” crowed Fortune.

But while the Fusion developers have promised many changes, including sharp reductions in power consumption and increased security, a short-term price increase was not one of them. The merger didn’t fix Ethereum’s high fees and congestion. Instead, it simply laid the groundwork for more infrastructure that could solve its problems for years to come. Anyone who expected Ethereum to look or perform very differently on Thursday would have been disappointed.

Cryptocurrencies are heavily affects by major market powers.

While cryptocurrencies were designed to hold their value regardless of the stock market, the two remain strongly intertwined. Over the past several years, tokens like bitcoin and ether have risen and fallen in correlation with larger market trends. Ether prices have been low this year since the Federal Reserve announced its intention to conduct a series of aggressive rate hikes to fight inflation. High interest rates demoralize consumers from investing in riskier assets, including other cryptocurrencies.

And last Tuesday, two days before the merger, a CPI report showed that inflation in the United States remains stubbornly high. More inflation means higher interest rates: Federal Reserve Chair Jerome Powell responded by saying the central bank must act “openly and forcefully” to fight inflation. And the market responded in turn, with the Dow Jones Industrial Average falling more than 1,200 points, making it the index’s worst day since June 2020. Ether, of course, fell amid the recession. The Federal Reserve’s decision on a possible hike is expected to be released this Wednesday.

Investors worry about regulation

Is ether a security? The issue has been debated since Ethereum’s early days, with blockchain developers hoping to fail the Howey test (the criteria that determine whether something is a security) and thus save Ethereum from much tighter regulation. For years, Ethereum leaders have argued that the token is decentralized enough, and regulators have largely stayed away. But last Thursday, SEC Chairman Gary Gensler said a token using proof-of-stake
could help it pass Howey’s test. “From a currency perspective…this is another indication that the investing public expects gains based on the efforts of others based on the Howey test,” Herr said.

Gensler told reporters after a congressional hearing, according to The Wall Street Journal. With Ethereum just transitioning to Proof of Stake, many investors took to social media to show care that Ethereum could be Gensler’s next target.

However, some crypto-focused lawyers say there is a long way to go from Gensler’s comments to ether being classified as a security. “The arguments that a token is turning into value aren’t actually that strong,” said Collins Belton, crypto attorney and managing partner at law firm Brookwood.

Long-term investors conflict with day traders

There were also internal dynamics within the Ethereum community this week. Last week, as it became increasingly clear that the merger would be successful, many Ethereum fans bought the token, believing that the transition bodes well for their long-term success. Ethereum developers and promoters love to toss around the term “ultrasonic money,” which describes the belief that the token’s value will be able to withstand global wars, economic collapses, or other major disasters. These Activity has pushed up the price of Ethereum – which in turn prompted day traders who bought the coin for purely economic reasons to take advantage of the appreciation. Its activity caused the price to fall again.

It was a prime example of the longstanding tensions in cryptocurrency: There are many different types of cryptocurrency investors, and sometimes those who believe in the technology for its long-term transformational abilities are at odds with those simply looking for a quick buck do.

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