The Ethereum Merge was widely predicted to be a “sell the news” event but few could have predicted exactly how big the ensuing sell would be. ETH fell below its critical $1500 support and then continued to fall, writing off 15%. By comparison, Bitcoin fell just 3% in the same period.
Why is Ethereum going down?
Some of these losses were already “baked in.” Traders expected ETH to pump on the hype surrounding the Merge and then fall again as people took profit. Still, the price currently hovers at below $1300 and continues to show a precipitous descent with immense selling pressure. Add to that the SEC’s recent muscle-flexing on crypto (ETH in particular) along with global interest rate hikes and it’s safe to say that Ethereum is on shaky ground.
There’s a straightforward reason for ETH’s price plummet, though: miners. The Merge led miners to dump over 30K ETH (around $40 million). This massive increase in supply also undercut the deflationary narrative associated with a switch to PoS. ETH was supposed to become deflationary post Merge (it did, albeit very briefly) but, as miners dumped, it turned inflationary again. Some of these miners will migrate to other PoW blockchains, others will simply put their GPUs up for sale and move on, but none have any reason to stick with Ethereum.
What does the future hold for ETH?
The dumping has continued since, with miners steadily exiting ETH in the post Merge environment. Worst of all, miners still hold another 240,000 ETH and have no reason not to sell. This equates to a guillotine that could drop at any moment, cutting the price down with it. Lower transaction fees also led to an increase in supply, further supplanting the deflationary narrative.
If you’re looking for some good news amongst the carnage, the miner dump can’t go on forever. Once the remaining overhang has been flushed out of the system, selling pressure will be relieved, leaving ETH free to commence an upward trajectory, supporting bullish sentiment. In the meantime, expect turbulent waters and more harsh medicine.