15 Sep 2022 · 3 min read

Ethereum Merge Buyers Turn Into Sellers as Trouble-free Upgrade Underwhelms

The price of Ethereum has fallen by 1% in the past hour and by the same percentage in the past day, with the now-completed Merge failing to spark a bull market as some had anticipated

ETH had increased to as much as $2,000 in mid-August as investors became excited about the second-biggest cryptocurrency becoming deflationary - yet aside from a mini-rally to $1,780 over the weekend, the price action has been disappointing.

Unfortunately for Ethereum and its holders, the Merge has happened in the wake of yet another downturn in global stock markets and the cryptocurrency market. Once again, the cause of this dip was the release of disappointing inflation figures for the United States, signalling that the Federal Reserve will hike interest rates yet again.

However, if Ethereum's supporters are the believe, it's only a matter of time before the shift to proof-of-stake bears dividends for ETH holders. Because with a drop in daily issuance, as well as an increase staking and token burns, ETH's supply will eventually end up being squeezed to the point of pushing up its price.

No Bull Rally for Ethereum's Merge Day

Prior to the Merge, ETH had enjoyed better price action than BTC, largely because investors had hopped onto it in the hope that it would see big gains following the move to Proof-of-Stake (PoS).

For example, CoinMarketCap data reveals that the price of Ethereum has increased by 18% in the past 60 days and by 45% in the past 90, in contrast to -5% and -4% for BTC (over the same timeframes). Such rises can likely be explained as the market 'pricing in' the Merge, implying that the expected short-term gains from the move to PoS had happened some time before today.

Indeed, today is likely to be disappointing for anyone who bought ETH over the weekend, hoping that it would rise to $2,000 or beyond. Instead, it has dropped to $1,592 as of writing, representing a drop of 10.5% from its seven-day high of $1,780 (set on Sunday).

For many observers, this decline makes the Merge a paradigmatic example of a 'buy the rumour, sell the news' event. In other words, traders hungry for quick gains should have jumped on the bandwagon a little sooner.

As the tweet above argues, the lack of a Merge-day bounce shouldn't really be surprising. Yes, Ethereum has slashed its energy consumption by 99% today, but in terms of performance gains, adoption or circulating supply, nothing has really changed compared to yesterday.

And when you add the fact that, say, the Dow Jones had its worst day since July 2020 on Tuesday (losing 1,200 points) because of inflation data, it's also hardly a shock that traders and investors aren't flooding into ETH at the moment.

Playing the Long Game

This means that serious traders really should learn some patience and invest in ETH for the longer term. Because according to projections, the supply of ETH relative to its demand will drop substantially over time.

For instance, the end of mining rewards will on its own result in a 90% fall in the issuance of new ETH. When coupled with an increase in staked ETH (which will remain locked up for the foreseeable future) and token burns of the EIP-1559 upgrade from last year, the market could see ETH become deflationary sooner or later.

And it's also important to note that, even before the Merge, Ethereum was by far and away the biggest layer-one blockchain in terms of total value locked in. Once it begins building on the foundations set by the Merge by introducing scaling improvements, it will likely become even bigger, as efficiency gains attract more adoption.

In turn, this will result in more demand for ETH and an increasingly rising price. Just don't expect it to happen all at once.