Why Ethereum Price is Crashing and What Can Arrest its Fall
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Despite the announcement of the Ethereum merge, the price of the largest altcoin in the world is crashing. However, an Ethereum increase in price following the new network upgrade? Let’s take a look.
Ethereum Price Correction
Ethereum and the broader cryptocurrency markets have been descending since 2022 – amidst the economic crisis following the pandemic, increasing inflationary data and interest hikes. In November 2021, Ethereum (ETH) reached an all-time high (ATH) of $4,900.
In the chart above, Ethereum (ETH) has witnessed a significant price correction since 13th September 2022. From $1,748 on the 13th, the largest altcoin plummeted to under $1,300 on September 18th – equating to a 25% price correction in under a week. Currently, Ethereum is trading at $1,350 – 72% below its November highs.
Surprisingly, the sudden fall in the price of Ethereum has corresponded with the network’s new merge update – which will see Ethereum shift from a Proof of Work (PoW) to a Proof of Stake (PoS) consensus. But why has the token corrected despite the announcement of the merge?
What Has Ethereum Corrected?
On September 15th 2022, Vitalik Buterin, the creator of Ethereum, tweeted announcing the successful launch of the Ethereum verge. Earlier, Ethereum’s network was facing trouble relating to scalability and slow transaction processing times. The new merge is expected to make the network a faster, cheaper and more scalable solution.
Despite the launch, Ethereum has corrected right after the announcement. One of the reasons for this is the ‘buy the rumour, sell the news’ phenomenon. In trading, this means that a cryptocurrency’s price tends to go up after positive announcements relating to a cryptocurrency.
In the context of Ethereum, the token has recently delivered returns right before the merge news announcement. Between Mid-July to August 14th 2022, Ethereum rose from $1,000 to nearly $2,000 – a 2x price increase. This was the first sign of a solid upwards movement in the price of Ethereum since April 2022.
Many analysts believe that the recent price correction is due to Ethereum’s already inflated price tag caused by people buying the rumoured way ahead of the actual announcement.
Moreover, the SEC (U.S securities and exchange commission) recently announced that staked cryptocurrencies might be subject to federal securities regulation. This announcement was made by Gary Gensler, the SEC chair, on 15th September 2022 – just a few hours after the Ethereum merge was finalised.
Since the Ethereum merge will make the token a Proof of Stake cryptocurrency, many correlated the timing of the SEC announcement with Ethereum’s new development. However, the SEC clearly stated that the announcement does not revolve around any particular cryptocurrency.
These factors may have led to a short-term bearish sentiment in the market, but can Ethereum become one of the best altcoins to invest in the future?
Can Ethereum Go Up?
As stated above, the ‘buy the rumour’ sell the news’ phenomenon may have resulted in the instant price decrease of Ethereum. However, the confirmation of the Ethereum news has the potential to make Ethereum one of the most popular cryptocurrencies to watch.
Before the merge, Ethereum was still the biggest cryptocurrency for developers to deploy decentralized applications (DApps) and NFT-based protocols. The merge aims to make the Ethereum network more sustainable – since the platform will rely on crypto staking, which is far more sustainable than the Proof of Work concept.
Moreover, Ethereum’s historical price shows the token’s strength to rebound in the long term. While past performance does not indicate future success, Ethereum’s new upgrade may invite many investors to purchase the token at a lower price.
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