The price of ether fell Thursday after the Ethereum network completed its migration to the proof-of-stake consensus mechanism, also known as the “merge.”
Ether last dropped about 5% to $1,511.99, having previously fallen to $1,459.00, according to Coin Metrics. Traders had expected a drop in prices after the transition late Wednesday night.
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“It is important to recognize that the merger is already largely priced,” said Anto Paroian, CEO of crypto hedge fund ARK36. “Ethereum is already up more than 100% since its lows in June, so it seems likely that if the merger proves to have a positive effect on Ethereum’s price action, the upside potential will not be sustainable.”
After the value of cryptocurrencies fell in the first half of the year with other risky assets, ether recovered to start the second half and has since outperformed bitcoin. In July alone, it rose nearly 70%, compared to bitcoin’s 27% gain, according to Coin Metrics. In August, it fell nearly 9.3%, compared to bitcoin’s nearly 17% loss.
“Many investors expect it to be a ‘sell the news’ event, meaning that after the initial surge, we could actually see the price of Ethereum fall in the coming days or weeks, especially given that, just like the rest of the crypto markets, ETH is still strongly driven by the negative macroeconomic outlook,” Paroian said.
For months, investors have been cheering Ethereum’s planned technical upgrade for its ability to turn ether into a revenue-generating asset and improve the security of the network in an energy-efficient manner. Many have called it one of the most significant moments in crypto’s short history.
Many in the crypto market have also followed a popular trade: investors have bought spotether and shorted ether perpetual futures, to get free tokens of the “forked” version of Ethereum without the exposure to the ether price. Some analysts have said they expect trading to pick up after the merger.
“Now that the merger has happened, traders and funds are positioning themselves out of it, that trading is kind of over,” Jason Lau, chief operating officer at Okcoin, told CNBC’s “Crypto World” on Thursday.
“On the other hand, asset managers and holders are basically positioning themselves for a long-term game,” he added. “The Ethereum merger is really just one step in a sphere in a long series of upgrades that will lead to greater scalability and upgrade the performance of the Ethereum network.”
Nevertheless, the market remains largely macro-driven. The price of ether had changed little for most of the morning, but fell along with stocks, most notably the Nasdaq Composite, which fell 1%. Bitcoin, whose correlation with stocks hit an all-time high this year, fell less than 1%.