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Price of Ether Drops Following Major Technology Upgrade

  • Ether declined 15% since the Ethereum network completed a significant update known as "The Merge"
  • Ahead of the update, the price of ether nearly doubled from the year's low in June 2022, exceeding bitcoin's gains by a significant margin
  • Risky asset classes are suffering globally due to worries about more hikes in interest rates by the US Federal Reserve

Cryptocurrency Ether Declines After “The Merge”

The price of Ether decreased 19% over the last two weeks as Ethereum miners liquidated their holdings following the much-anticipated software upgrade called "The Merge". Ethereum is a blockchain technology that enables developers to build apps on top of it. The native coin used by Ethereum is called Ether. “The Merge” is a technology upgrade to Ethereum that switches the proof-of-work approach for transaction validation to a proof-of-stake method. The new method is expected to significantly increase the energy efficiency of transaction validation on Ethereum.

Why is it Falling?

In addition to the selloff by miners, Ethereum has other problems. Although there have been no significant issues with the software upgrade, it is unclear whether there are any bugs. Another issue is that the new Ethereum version is less decentralized than the previous one, at least for avid supporters of cryptocurrency. Crypto networks, such as those for ether and bitcoin, are made to allow anybody to download the software, execute it, and join the network as a node.

Markets globally have been plunging as the US Federal Reserve and other central banks continue to aggressively increase interest rates to combat increasing inflation. Riskier assets are often less appealing to investors when safe debt rates are higher, and cryptocurrencies are among the riskiest asset class. Crypto also felt the heat as stock markets continue to be under pressure. Cryptocurrencies showed a strong correlation with the stock markets in the US, particularly with the tech-heavy Nasdaq. Regulatory concerns were also raised after “The Merge”. Ethereum's staking model and the manner in which it generates revenue could be a sign of an asset that satisfies the requirements for security. If the SEC determines that Ethereum is a security, a slew of new rules would be implemented for the industry.

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