Crypto Market Update

Will The Merge Trigger The Perfect Storm For Crypto Markets?

Last week was “relatively” calmer for the markets, with the long-awaited Ethereum 2.0 merge dominating the narrative, while other topics such as macroeconomics, NFTs, and Layer-2s took a back seat.

Even Bitcoin saw limited volatility, waffling around $20,000 throughout the beginning of the month before losing the threshold on Sept. 5. As many major cryptos also crashed back, the total crypto market capitalization dropped below the $1 trillion mark.

After sliding below $20,000, Bitcoin lost more than $1,000 in value on Sept. 6, crashing to the lowest levels in months. However, the market leader bounced from the local bottom at around $18,600 on Sept. 7 and was able to recoup a minor share of the losses, trading at above $20,000 at the time of writing.

As market participants focus on Ether, Bitcoin’s market share has fallen to levels not seen since January. According to CoinMarketCap data, Bitcoin’s dominance rate dropped below 39% after a long-term decline from around 45% seen in mid-June.

Arca, an institutional-focused crypto fund, highlighted the change in Bitcoin’s perception in the eyes of investors. Arca’s Jeff Dorman declared, “ETH is the most pure play, generic way to express a “growth of blockchain” theme, while BTC is now just a boring, highly correlated macro trade.”

Image Source: CoinMarketCap

As of now, this opinion is not mainstream in the markets now, but there are signs of Bitcoin losing its monopoly as the best bet on the future of crypto as a whole.

The Merge Bonanza

Image Source: CoinMarketCap

Riding on the wave of interest, Ether had a considerably stronger week than the broader crypto market, especially after developers successfully activated the Bellatrix upgrade on Sept. 6. Bellatrix was the last step before merging the PoS Beacon Chain with the main Ethereum blockchain, which has entered the final days of its PoW era.

The news lifted ETH up to its weekly high of $1,680 on the day of the upgrade, according to CoinMarketCap data. However, a move down on Sep. 7 almost completely wiped out the gains ETH notched earlier this week. Nevertheless, the ETH/BTC ratio is rising steadily, and Ethereum is still one of the best-performing cryptos these days despite a sell-off in the wider crypto market and losing streaks seen in the stock market.

Bellatrix prepared the network for the transition from PoW to PoS, but the merge itself is expected to happen between Sep. 13-15, according to Vitalik Buterin’s Twitter post.

Now that all the preparations for the merge are done, it’s unlikely that the event will be rescheduled.

The concerns over Ethereum merge seem to be fading as the merge nears, but Ethereum miners are still planning a Proof-of-Work fork that will keep the network running on the current Proof-of-Work (PoW) consensus mechanism.

While the airdrop of ETH PoW (IOU) tokens for ETH holders is not confirmed, many in the crypto community are laying out strategies to maximize their gains from the merge, including trading the forked tokens.

If you are an Ethereum holder, it makes sense to move your ETH tokens onto the Ethereum mainnet, which implies moving your holdings away from Ethereum sidechains and exchanges.

Top 7-day Gainers

  • $VGX: The token associated with the bankrupt crypto lender Voyager spiked over 70% between Sept. 6 and 7 after the company revealed the decision to auction its assets for qualified investors on Sept. 13, with the results expected on Sept. 29. This is barely a fundamental reason for such a price jump, so VGX may soon give up at least some of the recent gains.
  • $RVN: Ravencoin’s RVN saw a 28% price surge following a series of bullish events: the token was listed on the KuCoin exchange, and Ravencoin developers revealed some minor updates for the project.
  • $CEL: The token of a beleaguered crypto asset lender, Celsius, closes this week with a 21% gain after the company shared its plans to unfreeze some customer funds. However, negative news came soon after to cap the rally.

Top 7-day Losers

  • $HNT: Helium network‘s $HNT token tumbled nearly 20% over the last week before it recouped some losses as investors reassess the project’s proposal for a transition to Solana, away from its own blockchain. While the planned network-wide change was designed to fix the problems hindering Helium’s growth, it eventually caused a price drop, probably reflecting the HNT holders’ sentiment.
  • $NEXO: The token of a lending platform, NEXO (one of the rare ones that survived June’s crypto lending crisis), is closing the week deep in the red with a 15% loss even though its decision to allocate $50 million to its token buyback initiative revealed on Aug. 30, and the introduction of its platform for spot, futures, and margin trading on Sept. 7. Today’s news might help the NEXO token to build some momentum to offset the recent losses though.
  • $FLOW: The native coin of the entertainment-focused blockchain network Flow is down 9% as the announcement made on Aug. 30 that the event ticketing behemoth Ticketmaster chose the Flow blockchain for minting tickets as NFTs for select events turned out to be a sell-the-news event for FLOW.

The Perfect Storm May Be Brewing

The high expectations around the Ethereum merge make ETH vulnerable to both idiosyncratic risks and macroeconomic factors. Therefore, we can see a perfect storm in the days around the merge, with a set of events happening almost simultaneously that can potentially reduce the positive effect of Ethereum’s transition from PoW consensus to PoS.

On the macro side, the U.S. inflation data is expected on Sept. 13, and as already proven many times this year, it holds power over stock and crypto markets. The release is likely to influence the Fed’s decision on interest rates during the FOMC meeting set for later this month.

Traders are now pricing in another three-quarter-point rate increase in September instead of a smaller half-point move, but the consensus may change accordingly with the new data on the state of the U.S. economy. The Fed has raised rates four times since March, by 75-basis-point increments at each of its last two meetings.

On the crypto side, seasonality is an important factor for September as it is the worst month seasonally, according to the recent report from QCP Capital.

Besides the merge itself also being a major force, rumors continue to circulate about the distribution of 140,000 BTC from the Mt. Gox hack back in 2014.

If eventually distributed, even not at once, such a large amount of coins flooding the market could cause a massive dump in the crypto market, and some analysts believe it might happen right after the merge. It is worth noting that these rumors have been in the crypto space for years but revived in late August.

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