Why has Ethereum (ETH) underperformed and what is the likely next step? After years of planning, blockchain has completed its transition to proof-of-stake (PoS).
The crypto market eagerly anticipated the transition, hoping it would improve the transition. However, investors have been disappointed with ETH’s post-merger performance so far. This suggests that the merger may not be the bullish catalyst that most investors were expecting.
Red Hot Inflation dampens meltdown excitement
During its construction phase, the merger generated a lot of interest, particularly among investors who believed that the Ethereum blockchain would see even more adoption, driving up the price of ETH.
Unfortunately, things didn’t go as planned. The price of ETH has fallen by 15.40% since the merger.
The problem seems to be that the whole crypto market is down. And the reason for this slowdown is simple: inflation. Last week, the Federal Reserve released consumer price index (CPI) data, revealing that inflation for August 2022 was 0.1% month-over-month.
Core inflation was also 0.6% month-on-month, with inflation since the start of the year at 8.3%. Inflation figures were much higher than expected and markets were rattled accordingly.
Market slows as interest rate concerns rise
With inflation on the rise, market analysts fear the Fed will raise interest rates even further. According Data according to CME FedWatch, the market is now fully priced in to a minimum rate hike of 75 basis points for the fed funds rate. However, there may be sufficient reason for the banking regulator to raise interest rates by as much as 100 basis points; if this happens, it will be the first time since the early 1980s.
The Federal Open Market Committee (FOMC) will meet on September 20-21 and issue a statement on planned interest rate hikes and Fed support. Mike McGlone, the senior commodities strategist at Bloomberg Intelligence, confirmed over the weekend that the Fed would not be slowing interest rate hikes anytime soon. This suggests that cryptocurrency investors may be facing a long bear market.
ETH is trading below all of its major moving averages (MA); the asset appears to be in distress. The crypto market has been consolidating over the past 24 hours, but there are still fears that this is just a short-term consolidation that will eventually lead to a decline.
Investors are now anticipating the FOMC meeting later this week. If interest rates rise above 75 basis points, the market could be rocked by another bearish wave, causing prices to fall.
NFT Price Rise
While things look grim now, there seem to be some interesting developments in the non-fungible token (NFT) space. Reports last week confirmed that sales of several NFT collections, which had already declined due to the market downturn, have increased.
Bloomberg reported that the Bored Ape Yacht Club had $1.3 million in sales on Thursday, an increase of 1,875% in 24 hours. Another popular collection, CryptoPunks, saw a 56% increase in trading volumes over the same period, amounting to $1.4 million.
OpenSea and Magic Eden saw respective increases of 77% and 36% in trading volumes over the same period.
NFTs are an essential part of how the Ethereum blockchain works. Since their selling has always been correlated with the market, the fact that these tokens are selling well should give investors hope that ETH is poised for a surge once the market turns bullish.