Simon Peters, a cryptocurrency market analyst at eToro, published an interesting commentary on Ethereum’s price one month after the Merge that upgraded Vitalik Buterin’s blockchain from Proof of Work to Proof of Stake.
Ethereum price: pre and post Merge
Despite what was rumored in the industry, namely that the move to PoS would benefit Ethereum’s price, this did not happen and ETH did not react positively to the change.
In reality, however, this is not a cause or consequence of the Merge. In fact, the reasons why the price of Ethereum is not going up would be related to other macroeconomic factors and interest rates.
In fact, it is not only the price of ETH that is not rising but the whole crypto sector, although something more was expected on Ethereum precisely because of the Merge.
In his analysis, Simon Peters explained it this way:
“One month on from the Merge of the Ethereum Network, the picture is still not easily readable. While the price of ETH hasn’t reacted positively in the month since, this is no doubt under pressure from macroeconomic factors specifically relating to broader investment market volatility, which in turn are caused by growing inflation, rising interest rates and other investor concerns.”
The reasons for Ethereum’s failure to increase in price must therefore be sought in the entire financial market, not just crypto.
In any case, it bodes well that ETH is slowly becoming a deflationary currency, as more crypto are being burned than are being staked.
For this reason, the eToro analyst is optimistic about the future of Ethereum’s price.
“In fact, beyond the market movement headlines, the amount of ETH in circulation has quietly become deflationary since around 8 October. With EIP-1559 still in effect, where a portion of transaction gas fees are ‘burnt’, more ETH is currently being burnt than being created via staking and block rewards.”
In his analysis, Simon Peters then also mentions JP Morgan, which a few weeks ago was pessimistic about the Merge, since with Proof of Stake the blockchain could become less decentralized than it was before with PoW.
“This onset of deflationary economics for the token is still early, too early to appreciate tangible impacts. That being said, some major institutions such as JPMorgan have indicated that the crypto market might not be pricing this shift correctly because of overarching equity market volatility.”
Ethereum: a long-term investment
Obviously, no one has a crystal ball, which is why the eToro analyst also urges calm and advises traders to focus more on long-term investments when it comes to Ethereum (and cryptocurrencies in general, we would add):
“In theory, prices should increase when supply drops and demand increases, but whether or not this will overcome the bearish macroeconomic climate right now, only time will tell. Market watchers are furiously looking for a ‘turn’ but this won’t arrive overnight. Long-term investors should focus on the long-term investment case.”