Despite the upgrade hype, Ether demand is lacking to push it over the Merge. Since Ethereum’s Merge was finalized successfully on September 15, ETH dropped 17% compared to Bitcoin’s 2.3% loss and S&P 500 at -7.2%.
Ethereum’s Merge into proof-of-stake blockchain happened during a volatile bear market, but the poor comparative performance still defies different market projections.
Ethereum Forecasts Did Not Pan Out
Months before Ethereum’s transition into a proof-of-stake blockchain, a bullish narrative had been quite dominant. Case in point, at the start of August, crypto analyst Mads Eberhardt, from Dutch bank Saxo, noted that the Ethereum Merge hype affected the whole altcoin space.
“In our view, the positive sentiment in Ethereum has positively influenced the price actions of the rest of the space, including Bitcoin.”
The ‘flippening’ narrative had now come in full force. The resulting 99.95 energy reduction by eliminating miners from the Ethereum ecosystem was the integral point. With mining rewards reduced by a staggering 13,000 ETH/day, this resulted in a ~90% plunge in yearly ETH issuance, from 5.5 million to 0.6 million.
“Despite ETH inflation decreasing, BTC dominance increased by +1.1% since the Merge, ruining the “flippening” narrative.”
By the very nature of that drastic inflation reduction, the value of every ETH was expected to surge considerably. Notably, in the intermediate run, post-Merge ETH has become highly deflationary than Bitcoin, despite not having a maximum token limit.
The major issue with this narrative is that PoS Ethereum is just the first step in joining the same playing field with other PoS networks, including Solana, Algorand, Cosmos, Avalanche, Cardano, and many others. While many of them are already scaled up for near-instant and affordable transactions, Ethereum is yet to cross the threshold with the Surge upgrade.
In that context, Ethereum scalability solutions need to rise up in valuation instead of Ethereum itself. Armando Aguilar, an ex-digital asset strategist at Fundstrat Global Advisors, noted this trend before the Merge.
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“The positive momentum will be for those projects that are building on top of Ethereum such as polygon, arbitrum … among many others.”
Ethereum’s Post-Merge Fundamentals Reviewed
After the Merge hype cooled down, so did the “buy the rumor, sell the news” driver disappear. Notably, the Ethereum competition enjoyed the upper hand. Cardano (ADA) underwent its scheduled Vasil scalability upgrade that cuts gas fees by around 50% and increased the network throughput, without a lot of hype involved.
Since Cardano has been lagging behind Ethereum, it made ADA’s year-to-date daily on-chain volume a lot wider, at +70% versus -62%, based on the latest Kraken report. Nonetheless, for the same reason, ADA was also the worst performer in the historically laggard September. Instead, small-cap Algorand took that crown at +367%.
In general, the Fed’s interest rate hikes splashed lots of cold water over the whole crypto industry. That is best visible when noting the activity from daily active addresses. Since they are designed to identify unique active addresses, we can see the network’s demand and the influx of new users.
Post-Merge, in September, ADA was competing closely with Ethereum, while Avalanche (AVAX) performed the worst at -17%. Year-to-date, just Bitcoin entered the positive activity territory.
As noted in the past, the post-Merge inflation rate dropped drastically. That is reflected by minimal circulating supply growth at -0.01 percentage points. That leaves ETH with the lowest month-over-month pp change when compared to its competitors.
Deflated circulating supply growth translates to fewer tokens available in the market for purchase. Nevertheless, since the ETH demand is decreased, Ethereum still underperformed competitive chains with greater supply growth.
This seems to be the most telling indicator among them all. Despite Ethereum’s DeFi dominance at around 57.8%, the network is currently in the price correction stage. The Merge news no longer holds any hype weight, which makes ETH the worst performer in the past 30 days.
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