Macroeconomic factors and centralization concerns are putting pressure on Ethereum’s price post-Merge.
Ethereum’s Merge on Sep. 15 turned out to be a sell-the-news event, which looks set to continue.
Notably, Ether (ETH) dropped considerably against the U.S. dollar and Bitcoin (BTC) after the Merge. As of Sep. 22, ETH/USD and ETH/BTC trading pairs were down by more than 20% and 17%, respectively, since Ethereum’s switch to Proof-of-Stake (PoS.
ETH/USD and ETH/BTC daily price chart. Source: TradingView
What’s eating Ether bulls?
Multiple catalysts contributed to Ether’s declines in the said period. First, ETH’s price fall against the dollar 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 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.
ETH 2.0 total value staked by provider. Source: Glassnode
Third, institutional investors, or “smart money,” also reduced exposure to the Ethereum-focused investment vehicles in the day leading up to and after the Merge.
Ethereum funds witnessed $15.4 million worth of capital outflows from their coffers in the week ending Sep. 16, according to CoinShares’ weekly report. In contrast, Bitcoin-based investment funds attracted $17.4 million in the same week, suggesting capital migration post-Merge.
Lastly, Ether also felt extreme selling pressure from its proof-of-work (PoW) miners, who sold $40 million worth of Ether in the days leading up to the PoS update.
Independent market analyst Tuur Demeester noted that Ether could continue its decline versus Bitcoin in the coming days, citing ETH/BTC’s previous reaction to key events in the Ethereum market, as shown below.
ETH/BTC price performance around key Ethereum events. Source: TradingView
The chart shows Ether traders’ practice of pumping ETH against Bitcoin ahead of adoption-related narratives, such as nonfungible tokens (NFT) and the Defi craze of 2021, and the ICO boom of 2017.
All of these rallies fizzled out once the hype subsided. Demeester highlights Ethereum’s switch to PoS as a similar hype phase that pushed ETH/BTC higher in 2022, expecting the pair to undergo a deep correction in the coming weeks.
“I expect ETH/BTC to break down violently at some point,” he said, adding:
“ETH is a ticking time bomb.”
ETH/BTC technicals hint at 10% drop ahead
Placing these fundamentals against Ether’s technicals versus Bitcoin presents a similarly bearish setup.