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The second largest ever cryptocurrency, Ethereum, successfully merged and finished its transition from Proof of Work (PoW) to Proof of Stake (PoS) after their fruitful but painstaking development that lasted eight years. However, despite all of the hype around Ethereum and its merge, last Monday, investors woke up to an unpleasant surprise of $1330 for Ethereum, which is the cryptocurrency’s lowest point since July. Namely, the coin experienced a whopping 20% drop from its September highs.

So why is the coin still struggling if the merge was supposed to fix lots of problems that originated from Ethereum and the PoW? These are just a couple of reasons why we see ETH dropping.

The Merge Was Never Meant To Impact The Short-Term Ethereum Price

The moment ETH merging was successful, investors and traders all across the globe were fully convinced that this event had changed cryptocurrencies and the crypto world forever.

However, not all is rosy for crypto traders and investors. In fact, nothing seems to go by their hands when we’re talking about Ethereum and its price. A sharp drop in energy consumption and a huge security feature bump did not seem to do enough for Ethereum to get back up. After the merge that happened on Thursday, all we saw was disappointment in the people who were a different-looking cryptocurrency and a huge price increase.

Can Market Trends Impact Ethereum’s Price?

One of the most crucial plays of crypto was its ability to hold its value despite the state of the stock market, but as we’ve seen a couple of times already, these two concepts are incredibly connected no matter what anyone tells you. Moreover, market trends have impacted some of the biggest crypto coins, like Ethereum, Bitcoin, Solana, etc., a couple of times in the past. This time, we saw Ethereum prices drop accordingly when the Fed announced its plans to implement aggressive interest rate hikes so that they could combat inflation. And as most of us know, high-interest rates stop investors from investing in riskier assets like cryptocurrencies.

Consumer Price Index two days before Ethereum’s merge showed that inflation in the United States still is at unbelievably high levels. This means that the Fed might implement even higher interest rates. Fed’s Chairman, Jerome Powell, stated that the Central Bank has to do everything it can to battle inflation. As a result, the Dow Jones Industrial Average responded with a decline of 1,200 points. The fall marked the index as its worst day since the month of June 2020.

What About Ethereum’s Security?

Since the beginning of Ethereum, investors have been talking about its security. And, the attempts of Ethereum’s developers to avoid the Howey Test (a set of tests that determine the level of security of something) aren’t doing anything good for the blockchain. Developers and leaders have been saying for years that the cryptocurrency token is decentralized, and this has kept most regulators away.

Before the merge, Gary Gensler, the Chairman of the Security and Exchange Commission, stated that the fact that after the merge, the coin will be using the PoS protocol might contribute to it passing the Howey Test. Here’s what he noted: “From the coin’s perspective…that’s another indicia that under the Howey test, the investing public is anticipating profits based on the efforts of others,”.

Crypto lawyers from all over the country are saying that there’s a long way from Gensler’s comments to Ethereum actually being classified as a secure asset. “The arguments about a token turning into security are actually not that strong,” stated Collins Belton, who is a well-known lawyer amongst crypto enthusiasts. “The primary differences between Proof of Stake and Proof of Work are the software you use and the hardware required.” He also added that even if the Security and Exchange Commission managed to label the coin as security. This logic would mean that they would have to do the same with PoW protocol coins like Bitcoin.

Day Traders VS. Long-Term Investors

When it became increasingly apparent that the Ethereum merge would happen, many people managed to buy into the token based on their beliefs that the merge was great for the long-term success of the coin.

The whole process started bringing the token’s price up, and many people who were holding the coin before the big drop started selling it. There were also people who bought right before the merge and sold at the highest point, which started dragging the price of Ethereum back down again.

Today the price of Ethereum is in the steady $1300s, with lots of people still believing that the merge will affect the price of Ethereum in the near future.

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