key takeaways
- Ethereum is down more than 8% after US inflation fell below analysts’ expectations.
- The downturn has put Ethereum at risk of its upcoming merger becoming a Proof-of-Stake “sell the news” event.
- Several industry figures have outlined the potential for ETH sales to increase, even if the merger is successful.
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Ethereum fell soon after today’s higher-than-expected Consumer Price Index print.
Ethereum hit by CPI print
Ethereum is straight to house its “merge” proof-of-stake, but traders are dumping ETH on news of high inflation in the US
The latest Consumer Price Index report fell on Tuesday, showing US inflation eased to 8.3% in August. On a month-on-month basis, the price of goods increased by 0.1%. Although the data showed that inflation had eased from July’s print of 8.5%, it exceeded expectations of a fall by 40 basis points.
Stock futures and cryptocurrencies fell soon after the data fell, with ETH slipping 8.7%. The sharp selloff came despite rising anticipation for Ethereum’s merge event, indicating that the long-awaited upgrade may not be the bullish catalyst expected for ETH holders. Based on current estimates, the Merge is set to ship early Thursday.
ETH showed strength in the summer leading up to the merge. The number two crypto was hit hard in June after Three Arrows Capital’s liquidity crisis event, falling below $900 for the first time in 18 months. However, it rose more than 100% in July and August, briefly rising above $2,000 on August 15. Ethereum’s plans for a work-of-work fork, called EthereumPOW, helped fuel the rally; It is expected that ETH holders will receive an airdrop of the forked token when the network launches.
However, since mid-August, ETH has struggled to maintain momentum. Federal Reserve Chairman Jerome Powell warned that the US central bank will continue to raise interest rates, and this week the top crypto fell against bitcoin after hitting its 2022 highs (worth around 12 ETH) last week. This time one BTC, while today its price is close to 13 ETH).
Can a merge be a “sell news” event?
With at-risk assets suffering as the 8.3% inflation numbers dominate the headlines, ETH is now facing the prospect of a “sell the news” event after its big day. “Buy rumours, sell news” is a popular expression among traders; It refers to a scenario where assets increase in anticipation of a major event, then decrease after the event occurs. “Sell the news” events are common in crypto, where assets can go up or down violently depending on major developments and market sentiment.
As the merge is set to bring major changes, including a 99% improvement in energy efficiency and a 90% reduction in ETH issuance, Ethereum believers have long expected the update to be a bullish catalyst for ETH. However, recent market activity has dashed hopes of a short-term win.
crypto briefing Starkiller Capital Chief Investment Officer Leigh Drogen, who warned of a potential “sell the news” scenario after an 8.3% CPI print. He added that there are two catalysts for the merge: plans for a proof-of-work Ethereum fork and increased retail interest from possible news coverage of the event. ,[The EthereumPOW] The business will recover quickly after the merge, and if the liquidity is not very good, it can create a mess,” he said. “Right now it is not very good and if there is a lot of macro volatility it will be worse. Right now it looks like the CPI print is the reason behind this.”
He added that the expectation that the merge could spark renewed retail interest in ETH is “a reasonable assumption,” but the news could be tarnished by the CPI print. “Opening some of these merge trades can cause huge issues because of these two factors,” he said.
BitMEX Co-Founder Arthur Hayes Hints He Thought the Merge Could Be a “Sell the News” unbanked Last week, it presented the idea of a 20% drop in prices in the days following the event. Hayes made it clear that he was long on ETH, however described the merge trade as a “no-brainer” due to the planned reduction in ETH issuance and the ongoing demand for Ethereum DeFi.
As of press time, ETH is trading at $1,588, according to data from CoinGecko. It is down 8.7% today and is down about 67.2% from its all-time high.
Disclosure: At the time of writing, the author of this article owns ETH and several other cryptocurrencies.