Investors are also wondering whether the regulatory standing of Ethereum may change after the merge
Multiple catalysts contributed to Ether’s declines in the said period. First, ETH’s price fell against the dollar and appeared in sync with similar declines elsewhere in the crypto market, driven by Federal Reserve’s 75 basis points (bps) rate hike. Second, Ethereum faced a lot of flak for becoming too centralized post-Merge. Only five entities have produced 60% of the blocks so far. The biggest share belongs to Lido DAO, an Ethereum staking service, that has 4.19 million ETH deposited, or over 30% of the total amount staked into Ethereum’s official PoS smart contract.
Investors are also wondering whether the regulatory standing of ether may change after the merge. On September 17, Gary Gensler, the chairperson of the US Securities and Exchange Commission (SEC), warned that the ETH upgrade could lead to the crypto asset being regulated as a security, as reported by the Wall Street Journal. Gensler said at a congressional hearing, “From the coin’s perspective…that’s another indication that under the Howey test, the investing public is anticipating profits based on the efforts of others”. He added that a crypto exchange offering staking services to customers make the operation “look very similar — with some changes of labeling — to lending.”
Gensler, whose comments were reported by several news outlets, did not name either specifically. The proof-of-stake model involves investors “staking” or locking up their ether and earning returns for doing so.
“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.
On-chain data shows that funding rates for ETH are still negative. Funding rates represent payments between buyers and sellers of futures contracts. When rates are negative, sellers are likely driving the market, as they pay buyers (longs) a premium while remaining short. Funding rates can often be used to measure market sentiment.
Data from crypto futures markets shows that many investors appear to have closed out hedged positions in the hours after the Merge went through – a sign that they are wrapping up trades they had made during the previous month or past few weeks to bet on possible outcomes of the event – including the possibility of a revolt by crypto miners who want to keep working on a “proof-of-work” system similar to Bitcoin’s, which Ethereum used until early Thursday.
The market might experience some volatility as large players unwind their “Merge” positions. QCP Capital concluded: Longer-term the ETH POS should be bullish, but we are not expecting an immediate breakout move post-merge. We are anticipating a huge pressure on the ETH vols post-merge.
Investors who rode ETH’s rally going into the Merge may have sold their positions. “Large liquidations of leveraged long positions across derivatives markets exacerbated the drop in spot prices,” according to a report from crypto data firm Kaiko that attempted to explain why ETH has fallen so much after the Merge.
For starters, there’s no fixed indicator that can predict exactly how a cryptocurrency’s price will behave. Just like the stock market, crypto prices fluctuate based on investor sell-offs, macroeconomic factors, and several other elements. So, despite a positive attitude of the overall crypto market toward the Merge, there was no way to predict that Ethereum’s price would indeed increase or decrease.
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