The central theses
- Bitcoin slipped below $19,000 for the first time since June.
- The cryptocurrency market has been looking rocky for weeks despite a recovery rally over the summer.
- Crypto traders and investors are anticipating the upcoming Ethereum “merge” event, but it may not have the immediate impact people have been hoping for.
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The much-anticipated Ethereum “merge” is set to ship next week, but even that may not be enough to keep Bitcoin and the rest of the crypto market from bleeding.
Bitcoin crashes the crypto market
As is tradition in the crypto market, September got off to a rocky start for Bitcoin and its younger siblings.
BTC/USD (Source: CoinGecko)
The world’s leading cryptocurrency extended its week-long losing streak on Wednesday, falling below $19,000 for the first time since the crypto market’s liquidity crunch in June. According to CoinGecko data, Bitcoin is trading at around $18,730 at press time, down 5.8% on the day. It is currently over 70% below its November 2021 peak.
The recent Bitcoin sell-off has hit companies like Ethereum, BNB, Cardano, and Solana even harder, leading to a market-wide downturn that has brought the global cryptocurrency market cap below $1 trillion.
The crypto market had shown signs of recovery over the summer following the explosion of Three Arrows Capital and the subsequent collapse of crypto lenders such as Celsius and Voyager Digital. Ethereum and other assets are up more than 100% since the June bottom, helped in part by slowing inflation rates and relatively conservative moves by the Federal Reserve, but the market’s bullish momentum was challenged in mid-August when Bitcoin hit $25,000 crypto and other asset classes took a major hit on Aug. 26 after Fed Chair Jerome Powell warned of more “pain” for markets in a speech in Jackson Hole, reiterating that the Federal Reserve hopes to bring inflation down to 2%.)
Can the merger save the market?
September has historically been a weak month for crypto prices, and over the past week, the market has continued its late-summer slump. For the past few weeks, traders have eyed the upcoming Ethereum to proof-of-stake “merge” as a possible catalyst for a recovery that will send Ethereum and other related assets like Lido and Ethereum Classic soaring. Touted as one of the most significant crypto events of recent years, the merge kicked off in earnest on Tuesday with the successful activation of Ethereum’s Bellatrix upgrade, while the main event is expected to take place in about a week. Still, Ethereum and other assets have taken a big hit with Bitcoin’s decline. Despite its summer run, ETH is trading at $1,508 at press time, around 69% below its all-time high.
While there is still time for the merge narrative to revitalize the market, given Bitcoin accounts for about 36.5% of the total cryptocurrency market cap, crypto believers are hoping interest in the top cryptos will return, as seen during the summer Ethereum was the case.
The merger is expected to improve Ethereum’s energy efficiency by 99.99% and reduce ETH issuance by 90%, but these changes will not directly impact Bitcoin. In fact, a proof-of-stake Ethereum is likely to expose Bitcoin’s reliance on an energy-intensive proof-of-work consensus mechanism, something that Elon Musk and several major institutional players have highlighted as worrying in 2021. Bitcoin has lost ground to Ethereum in recent weeks, prompting the second crypto’s top supporters to call for a “flip” where Ethereum’s market cap overtakes Bitcoin’s.
“Turning” hopefuls could wait some time, however—While Ethereum’s fundamentals have never looked stronger, ETH has rarely been unscathed by BTC’s biggest crashes in history. With crypto now almost a year in a bear market and ongoing macroeconomic fears like rate hikes and the European energy crisis still worrying investors, it’s hard to predict how the market will turn bullish for a sustained period of time in the coming months. The recent sell-off proves that even the biggest crypto event in years may not be enough to bolster the confidence of space’s notoriously ardent believers.
Disclosure: At the time of writing, the author of this article owned ETH and several other cryptocurrencies.
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