Is The Crypto Merge A Flop?

Cryptocurrency, Business, Finance, Money, Wealth, Gold

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Major cryptoassets such as bitcoin and ether faced fresh lows last week as sell-offs in an array of major assets, from gold to equities, pushed the crypto market down too.

Bitcoin faced a tough week despite the cryptoasset touching above $22,000 for the first time since August on Tuesday. The world’s largest cryptoasset saw its price fall sharply later in the week, hitting a low of $18,105 on the eToro platform yesterday, after a series of negative economic indicators sent markets tumbling. Currently, it is moving around $19,100.

Ether meanwhile experienced a similar sell-off, with the added weight of expectation on the Ethereum network in the wake of the Merge. The token was trading above $1,700 last Tuesday before falling to a low of just under $1,300 yesterday. It is currently trading at around $1,350. 

The Merge would seem to have had some impact, short-term, on the price, with a significant drop in the immediate aftermath. But zooming out to even just seven days’ performance and watchers will get a picture that the token is clearly moving in line with other risk assets in the face of fresh negative economic indicators. 

The Merge won’t be judged on a few days’ performance

The fall in ETH’s value in the past few days will be pointed to as evidence of the failure and overhype of the Merge - but like any investment and market - it won’t be judged on a tiny snapshot of performance.

The Merge was an inherently long-term change to the way the Ethereum network is governed and how it uses its resources. The promise of overnight miraculous change is an anathema to grown-up long-term sustainable development and should be treated with caution by any investors observing. 

The price of ETH has dipped below a recent support level of $1,400, but there is a much wider market struggle in play that is distracting investors from meaningful improvements to the network. Price volatility is being experienced across the board in crypto thanks to major macroeconomic factors beyond its control - in the same way, that equities are experiencing significant sell-offs. 

For investors considering their position at this juncture, those with a firm conviction in the long-term use cases of cryptoassets such as bitcoin or ether should ensure they are prepared for more volatility ahead as the economic story doesn’t yet appear to have turned the corner. But the long-term thesis for their investment should be a bigger indicator than pure market movement. 

Bitcoin mining difficulty hits all-time high

Bitcoin’s mining difficulty and hash rate have set fresh all-time highs. The ATHs come despite a significant weakness in the cryptoasset’s price. Bitcoin’s hash rate is essentially the total computing power of the network, the number of hashes generated and completed per second. 

The hash rate generally rises because of more competition between miners. In this instance, the ATH could be a signal of miners moving out of Ethereum and into other proof-of-work cryptos like Bitcoin, a trend that has been underway for a few weeks.

An abundance of miners and high levels of competition on the network which forces up the hash rate is broadly a good thing. Although it doesn’t correlate to price, the more miners on the network the more secure it is. It is also a signal that is common during bearish times where background usage and development keep going despite headline price falls and can be construed as a positive long-term indicator. 

Solana's daily transactions soar

A timely reminder for crypto enthusiasts - Solana, a key competitor of the Ethereum network, saw a major uptick in transaction volumes in the past few months, per data from Nansen. The Solana network has seen exponential growth in daily transactions since April, with over 40 million per day, up from around 20 million at the beginning of Q2.

Although, per the Nansen data, Solana transaction volumes are much more volatile than Ethereum, what is clear is in terms of usage as a network, it is now a real competitor. Major Dapps such as Mango Markets, StepN and Magic Eden have contributed to a major uptick in flow. Ethereum transactions have also dipped somewhat, which could be indicative of behavior shifts ahead of the Merge, but this won’t be clear until future reports. 

Solana now has a very healthy ecosystem of businesses and projects utilizing the platform for their crypto activities. It is a positive sign for the broader market that such a varied ecosystem is flourishing even at a time when valuations are depressed.

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Disclaimer: This article should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to buy or sell, any financial instruments. This material has been ...

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