Market Wrap: Markets Trade Lower Despite Success of Ethereum Merge

The Ethereum Merge, one of the most widely anticipated and monitored events in the history of digital assets, went smoothly early Thursday morning, as scheduled.

At approximately 06:43 UTC, Ethereum successfully transitioned from a proof-of-work consensus mechanism to proof-of-stake, intended to reduce both energy consumption and the supply of the native ether token.

Despite the upgrade’s success, both BTC and ETH declined in price on Thursday, as did the prices across traditional financial markets.

Economic Calendar: Initial jobless claims for the week ending Sept. 10 were 213,000, down from 218,000 the prior week, a figure that was revised downward from 222,000. The jobless claims data surpassed the analyst consensus of 225,000.

Continuing jobless claims were 1.403 million, up slightly from a revised total of 1.401 million in the prior week.

U.S. Equities: Traditional equities traded down, with the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 off 0.6%, 1.4% and 1.1%, respectively.

Commodities: Energy markets traded down, with crude oil and natural gas falling 3.8% and 9.2%, respectively. Safe-haven asset gold fell 2%, while copper prices declined 1.3%

The Dollar Index (DXY) declined 0.01% on Thursday

The CoinDesk Market Index (CMI), a broad-based market index to measure the performance across a basket of currencies, declined 4%.

ETH prices decline, despite successful Merge

Ether fell sharply on Thursday despite one of the most important events in cryptocurrency history occurring without a hitch.

The close to 9% price decline does not appear to be related to the Merge’s impact (i.e., the increase in energy efficiency, reduction in ether supply, etc). Instead, there’s likely a “sell the fact” price move in play as an “Ethereum Merge” trade unwinds.

Investors likely believe the Merge will affect the long-term supply of ether and efficiency of the blockchain itself, and see the Merge less as a short-term catalyst for price movement.

Overall, Thursday’s 9% fall marks the fourth decline over 8% for ether over the most recent 30 days, with the largest decline occurring on Aug. 19 (12.89%). On each of the prior occasions, trading volume exceeded its 20-day moving average, as it has today as well.

On a technical basis, ETH’s hourly chart shows that prices began to rebound after 14:00 UTC but reversed after falling below $1,500.

On-chain data shows that funding rates for ETH are still negative. Funding rates represent payments between buyers and sellers of futures contracts.

When rates are negative, sellers are likely driving the market, as they pay buyers (longs) a premium while remaining short. Funding rates can often be used to measure market sentiment.

As stated in the Sept. 12 Market Wrap, funding rates over the last 30 days continue to be negative, spiking directly ahead of the Merge. Expectations are that funding rates will begin to moderate in the near future because any fears surrounding an unsuccessful Merge turned out to be unfounded.

The long-term premise that the conversion to a proof-of-stake protocol will be a deflationary event has proven to be true for the time being.

Four minutes following the Merge (06:47 UTC), ether’s supply declined by approximately 30 ETH. As of 18:20 UTC, ETH’s supply declined by approximately 254 ETH. As traders go long on ether in anticipation of buying a deflationary asset, their narrative is currently being confirmed.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.