The Ethereum Merge, successfully completed on September 15, marked a historic shift from Proof-of-Work (PoW) to Proof-of-Stake (PoS). While the event was celebrated across the crypto community and beyond, its aftermath revealed complex market reactions and raised important questions about Ethereum’s future.
Ethereum’s Price Volatility Post-Merge
Despite widespread excitement around the Merge, ETH’s market performance told a different story. Shortly after the upgrade, ETH prices fell sharply, dropping below $1,300 and erasing gains made since mid-July. The broader cryptocurrency market cap also fell below $1 trillion.
This trend aligns with the classic market adage: “Buy the rumor, sell the news.” In the days leading up to the Merge, trading activity surged. Data from Crypto Compare indicated a 58% increase in trading volume between September 6 and 16, with ETH dominating a significant portion of transactions.
According to industry observers, institutional activity played a major role in this volume spike. However, macroeconomic factors also contributed to the decline. Higher-than-expected U.S. inflation data and anticipated interest rate hikes by the Federal Reserve added selling pressure across risk assets, including cryptocurrencies.
At the time of writing, ETH is testing crucial support levels. If it falls further, decentralized finance (DeFi) protocols like MakerDAO could face liquidations, potentially exacerbating market volatility.
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Shifts in Ethereum Classic (ETC) Network Activity
Ethereum Classic (ETC), often seen as an alternative for displaced ETH miners, experienced notable changes in the lead-up to and aftermath of the Merge.
ETC’s hashrate surged by 200% in the 30 days before the Merge, peaking at 311.82 TH/s on September 16. However, it has since declined by approximately 40%, suggesting some miners have turned off equipment or shifted to other networks.
Price action told a similar story. ETC rallied over 240% between July and August, climbing from around $13 to over $45. But it failed to maintain momentum, and post-Merge, it fell below the key $30 support level.
The Sharp Decline of EthereumPoW (ETHW)
EthereumPoW (ETHW), a PoW-based fork of Ethereum, faced technical and security challenges almost immediately after launch.
Users reported difficulties accessing the ETHW network due to misconfigured chain IDs, which matched Bitcoin Cash’s testnet settings. Soon after, BlockSec, a blockchain security firm, reported a hack resulting in the loss of 200 ETHW. The exploit involved replaying messages between chains due to a bridge validation flaw.
These issues severely impacted investor confidence. ETHW’s price collapsed by nearly 90%, from over $51 to around $5. Its hashrate also dropped by more than 63% from its peak.
Looking Ahead: The Shanghai Upgrade
With the Merge complete, Ethereum’s next major update is the Shanghai upgrade. While full details are still under discussion, a key expected feature is the ability to withdraw staked ETH.
Currently, over $21 billion worth of ETH is locked in the Beacon Chain without an option for withdrawal. The Shanghai upgrade could unlock this liquidity, but it is not expected until 2023.
It’s worth noting that more than 70% of staked ETH was deposited at prices higher than current levels. If stakers decide to sell after withdrawals are enabled, ETH may need to appreciate significantly to avoid further market pressure.
Frequently Asked Questions
What was the Ethereum Merge?
The Merge was Ethereum’s transition from Proof-of-Work to Proof-of-Stake, aimed at reducing energy consumption and improving network scalability and security.
Why did ETH price drop after the Merge?
The price decline was influenced by a “sell the news” effect, increased institutional trading, and broader macroeconomic factors like inflation and interest rate expectations.
What is Ethereum Classic (ETC)?
ETC is a Proof-of-Work blockchain that originated from an earlier Ethereum fork. It received increased miner attention after the Merge rendered ETH mining obsolete.
What is EthereumPoW (ETHW)?
ETHW is a fork of Ethereum that aimed to preserve Proof-of-Work mining. It faced technical issues and security vulnerabilities shortly after launch.
What is the Shanghai upgrade?
The Shanghai upgrade is Ethereum’s next planned network update, expected to enable the withdrawal of staked ETH and introduce other improvements.
When will the Shanghai upgrade happen?
The upgrade is anticipated in 2023, though an exact date has not yet been finalized by Ethereum core developers.
In summary, while the Merge was a technical success, its market impact has been mixed. Price volatility, miner migration, and the rocky launch of ETHW illustrate the complex interplay between technological milestones and financial markets. All eyes are now on the Shanghai upgrade and its potential to stabilize and advance the Ethereum ecosystem.