Ether led digital assets lower after the groundbreaking software upgrade of the token’s underlying network turned into what some market observers labeled a “sell-the-news” event.
(Bloomberg) — Ether led digital assets lower after the groundbreaking software upgrade of the token’s underlying network turned into what some market observers labeled a “sell-the-news” event.
The second-largest cryptocurrency by market value after Bitcoin dropped as much as 8.9% to $1,460. Ether, already down more that 50% this year, had rallied more than fivefold last year in part on optimism about the revision.
“Now the excitement around the Merge is done, and we don’t have a catalyst for Ethereum in the short term,” said Martha Reyes, head of research at BeQuant, crypto exchange and prime broker. “It would be natural to expect a bit of rotation back into BTC.”
Bitcoin dropped about 1% to $19,746. Cardano fell around 2.8%, Polygon slumped 1.9%, while Solana was little changed.
Ethereum’s revamp makes it vastly more energy efficient and paves the way for it to scale up and become quicker, according to the network’s developers. The update was years in the making and appears to have gone smoothly, though hiccups remain possible.
“That was unbelievably smooth,” said David Fauchier, a portfolio manager at Nickel Digital.
Exchanges and lending platforms temporarily disabled Ethereum-related services before the Merge. They later began bringing them back online.
The funding rate of Ether perpetual futures contracts on crypto exchange including Binance and FTX have started to recover, according to crypto data firm Kaiko Research. Ahead of the Merge, some investors were hedging their long spot positions of Ether by shorting Ether. Exchanges use the funding rate — or the cost to trade –to tether the contracts to their underlying spot price.
“The successful completion of the Merge has alleviated risk hedging for a possible worst case scenario,” said Clara Medalie, strategic initiatives and research director at Kaiko.
Other market participants pointed out that some investors were using the futures market to hedge against losses while they held onto Ether tokens through the Merge. Ether holders are receiving a new token called EthereumPOW.
“The main driver of negative funding rates now is linked to the upcoming Ethereum Proof of Work hard fork,” Medalie said. “Traders are holding onto their ETH until the airdrop, and hedging using perpetual futures.”
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