Market Wrap: Markets Trade Lower Despite Success of Ethereum Merge
The Ethereum Merge, one of the most widely anticipated and monitored events in the history of digital assets, went smoothly early Thursday morning, as scheduled.
At approximately 06:43 UTC, Ethereum successfully transitioned from a proof-of-work consensus mechanism to proof-of-stake, intended to reduce both energy consumption and the supply of the native ether token.
Despite the upgrade’s success, both BTC and ETH declined in price on Thursday, as did the prices across traditional financial markets.
- Ether (ETH) fell 9% on above-average volume. The price declined mildly following the Merge and continued down for the remainder of the day. A more pronounced 6% decline occurred during around 14:00 UTC as volume spiked, but the dip does not appear to be Merge related. Implied volatility (IV) for ether declined sharply following the Merge’s success as fears of potential problems were alleviated.
- Bitcoin (BTC) declined 2% on moderate volume. On an hourly basis, BTC saw a similar aggressive drop in prices around 14:00 UTC. A look across traditional financial markets shows corresponding declines.
Economic Calendar: Initial jobless claims for the week ending Sept. 10 were 213,000, down from 218,000 the prior week, a figure that was revised downward from 222,000. The jobless claims data surpassed the analyst consensus of 225,000.
Continuing jobless claims were 1.403 million, up slightly from a revised total of 1.401 million in the prior week.
U.S. Equities: Traditional equities traded down, with the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 off 0.6%, 1.4% and 1.1%, respectively.
Commodities: Energy markets traded down, with crude oil and natural gas falling 3.8% and 9.2%, respectively. Safe-haven asset gold fell 2%, while copper prices declined 1.3%
The Dollar Index (DXY) declined 0.01% on Thursday
The CoinDesk Market Index (CMI), a broad-based market index to measure the performance across a basket of currencies, declined 4%.
● Bitcoin (BTC): $19,823 −0.4%
● Ether (ETH): $1,505 −5.6%
● CoinDesk Market Index (CMI): $990 −1.9%
● S&P 500 daily close: 3,901.35 −1.1%
● Gold: $1,674 per troy ounce −1.3%
● Ten-year Treasury yield daily close: 3.46% +0.05
Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.
ETH prices decline, despite successful Merge
Ether fell sharply on Thursday despite one of the most important events in cryptocurrency history occurring without a hitch.
The close to 9% price decline does not appear to be related to the Merge’s impact (i.e., the increase in energy efficiency, reduction in ether supply, etc). Instead, there’s likely a “sell the fact” price move in play as an “Ethereum Merge” trade unwinds.
Investors likely believe the Merge will affect the long-term supply of ether and efficiency of the blockchain itself, and see the Merge less as a short-term catalyst for price movement.
Overall, Thursday’s 9% fall marks the fourth decline over 8% for ether over the most recent 30 days, with the largest decline occurring on Aug. 19 (12.89%). On each of the prior occasions, trading volume exceeded its 20-day moving average, as it has today as well.
On a technical basis, ETH’s hourly chart shows that prices began to rebound after 14:00 UTC but reversed after falling below $1,500.
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.
As stated in the Sept. 12 Market Wrap, funding rates over the last 30 days continue to be negative, spiking directly ahead of the Merge. Expectations are that funding rates will begin to moderate in the near future because any fears surrounding an unsuccessful Merge turned out to be unfounded.
The long-term premise that the conversion to a proof-of-stake protocol will be a deflationary event has proven to be true for the time being.
Four minutes following the Merge (06:47 UTC), ether’s supply declined by approximately 30 ETH. As of 18:20 UTC, ETH’s supply declined by approximately 254 ETH. As traders go long on ether in anticipation of buying a deflationary asset, their narrative is currently being confirmed.
- Ethereum Merge Brings 'Sell-the-Fact' Price Move in Crypto Markets: The ether (ETH) price stability that prevailed after Ethereum's shift to a more energy-efficient "proof-of-stake" network suddenly evaporated as ether slid 9.1%, its worst day since late August. Read more here.
- Ethereum Classic and Ravencoin's Hashrate Nearly Doubles After Merge: Earlier on Thursday, Ethereum switched to a system that does away with the need for miners. Read more here.
- Lido’s Staked Ether Surges Closest to Ether Since Terra Crash: The stETH derivative and its spread to ETH, a closely followed metric of the confidence in the Merge, sharply narrowed as Ethereum completed its technology transition without a hiccup. Read more here.
- Listen 🎧: Today’s "CoinDesk Markets Daily" podcast discusses the latest market movements and a look at the dangers of crypto tribalism.
- The Ethereum Merge Is Done, Opening a New Era for the Second-Biggest Blockchain: The historic upgrade casts aside the miners who had previously driven the blockchain, with promises of massive environmental benefits.
- Ether Futures Market Discount Evaporates After the Merge: The negative spread between futures and spot prices has narrowed from $20 to almost zero following the Merge.
- Meet 8 Ethereum Developers Who Helped Make the Merge Possible: Ethereum’s impending shift to proof-of-stake could not have happened without researchers, developers, volunteers and many, many client teams.
- Vitalik Buterin Says Ethereum Merge Cut Global Energy Usage by 0.2%, One of Biggest Decarbonization Events Ever: Ethereum now spews out less carbon dioxide than a few hundred U.S. households, according to a report.
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