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The highly anticipated Merge was successfully fulfilled last week to the satisfaction of Ethereum bulls, but equally, the relentless decline in the coin’s price is giving ETH bears a reason to rejoice.
This bear vs bull fight has left those of us who sit in neither camp holding the bag and re-evaluating everything we knew about Ethereum, and life in general. But fear not, Blockhead is here to sooth your woes.
What’s the Damage?
Since The Merge day (15/09/22), the price of Ethereum has fallen over 20% to lows of US$1,289.80. It’s a significant blow to the already-weakened coin.
While the price drop isn’t Ethereum’s lowest this year – crypto winter saw ETH plummet to sub-US$1,000 in June – the post-merge blues is flirting with January 2021 lows.
The Merge crash appears to be a victim of “buy the rumour sell the news” – typical market behaviour of any highly anticipated event.
Last month, Blockhead reported how ETH three-month future contracts were trading lower than its spot price, leaving futures and options markets in backwardation post merge. In English, it meant that traders were betting on ETH’s price to fall post merge.
With selling pressure coming from traders, Ethereum’s upside potential is restricted. It certainly seems like shorts are having their cake and eating it, with the backing from the power of traders and institutions.
Arcane Research noted that the backwardation could be a result of traders’ strategies going long ether in the spot market whilst shorting ether futures.
Blockhead’s resident Blocksmith is parroting a similar message based on technical analysis too. “Sadly I think it is now safe to say that the 80 day cycle has topped earlier than expected and that the price path is down into the mid November 20 week cycle low,” he concluded on Thursday.
“If this view is accurate then expect a short sharp rally soon as the 40 day cycle bottoms, but this shorter cycle is likely to top out early as well and then the decline should steepen up.”
Even crypto’s correlation with gold is suggesting that “shit just got real,” according to the Blocksmith.
More worringly still, there is little to look forward to in terms of upcoming updates for Ethereum. The Merge has been on the cards for countless years, with the market driving up anticipation for the big transition. Now that the Merge has finally happened, the market has nothing tangible to mark in the calendar to drive up the price.
Reasons to Be Opti-merge-stic
Whilst bulls will be biased in their Ethereum outlook, it’s worth hearing them out to understand what their thesis is rooted in.
Blockhead headed down to a Merge Party on the day of the Merge to chat with Singapore’s Ethereum community to learn more.
Minutes after the Merge happened, Ethereum Foundation represenative Dustin told Blockhead he was “really excited that it had gone through.”
“It’s become something like Y2K, not in the sense that, nothing happened, but nothing happened because there was a lot of work that people put into it. The fact that the biggest network in the world has been moved from one consensus algorithm to another, and done it live, it’s really a testiment to the amount of work the core developers have done for the last five to six years.”
Giang Diem Quynh – founder of ETH Vietnam host SUCI – had just flown in from Ho Chi Minh City for the Merge and told Blockhead, “I believe in the long term, so I don’t really care about the short term price.”
“The Merge is a milestone for Ethereum,” she continued. “A lot of things will happen for the blockchain and web3 ecosystem. We hope with this milestone, Ethereum can scale and we can build things that are sustainable for hundreds of years.”
Furthermore, Ethereum still plays a fundamental role in the wider crypto ecosystem.
“We should not be killing Ethereum because in the mass market now, Bitcoin and Ethereum are known…Ethereum has gotten the attraction of the person on the street, and it has led the wave of smart contract platforms,” said Gwendolyn Regina, investment director at BNB chain.
For Emily Parker, executive director of global content at Coindesk, the fate of Ethereum is tied to the fate of the crypto world, which means that if it were to fail, there would be consequences for the industry at large.
“It’s funny that people in crypto don’t always think that way. There could be a lot of tribalism and rivalries, but the truth is that it’s in everybody’s interest for the large market cap coins to not fail,” she emphasized.
Blockhead’s Non-Financial Advice
It’s certainly not our place to dish out financial advice, but to prevent allegations of clickbaiting you thus far, we can instead tell you how we feel and what we’re doing.
As mentioned earlier, we’re not necessarily Ethereum bulls – at least not to the extent of hosting a Merge Party – but we are optimistic about the future of Ethereum. Scalibilty and sustainability are crucial for the future of crypto, and the Merge has placed Ethereum on the right footing to achieve this.
That said, ETH’s price action is troubling. In our Blocksmith we trust, and given the strong selling pressure from traders, we’re reluctant to pull the buy trigger on ETH any time soon. We’ll be watching closely for a juicier entry point but when we enter, it’ll be the longest of long-term plays.