The cryptocurrency market is still reacting to the historic Ethereum (ETH) Merge event that transitioned the blockchain to a Proof-of-Stake (PoS) status. Despite the event being touted as bullish, 24 hours later, the crypto market is recording capital outflows outweighed by other factors like skyrocketing inflation.
Indeed, as of September 16, the global crypto market capitalization stood at $958.83 billion, a drop of about 3.2% or $32.24 billion from the $991.07 billion recorded on September 15.
One day global crypto market capitalization chart. Source: CoinMarketCap
Before the Merge, a section of the crypto market had projected that the event would likely send Ethereum’s price skyrocketing. However, none of the projections have so far come true 24 hours later, with ETH trading at $1,400 by press time, a drop of almost 10% over the period.
Ethereum 1-day price chart. Source: CoinMarketCap
Similarly, Bitcoin (BTC) is trading in the red, dropping below the physiological $20,000 level. By press time, the crypto was valued at $19,700.
Impact of the Merge
Although the Merge appears not to have any short-term positive Iimpact on the general cryptocurrency market, the sector will need another bullish narrative to trigger a future rally.
With the Merge turning out successful, the bulls appear overpowered, a factor that potentially indicates that the upgrade was a “buy the rumor, sell the news” event.
This scenario is partly highlighted by a previous Finbold report that indicated that Ethereum inflows to exchanges started rising on September 12, amounting to about 700,000 ETH, before growing to about 1.7 million ETH on September 14.
At the same time, Ethereum’s social dominance also surged before the upgrade. In particular, on September 13, the asset’s social dominance stood at 14.79% after climbing +23.19% in only one month.
Similarly, Meltem Demirors, the chief strategy officer of crypto asset management company CoinShares, pointed out that macro environment factors will potentially deter new capital from entering Ethereum while referring to the update as a ‘buy the rumor, sell the news event.’
All eyes on the FED
At the same time, the sell-off appears to stem from general macroeconomic factors, with surging inflation the main trigger. Following the recent inflation figures, there are expectations that the Federal Reserve will likely hike interest rates to contain the situation.
Therefore, the next FED meeting is considered a key indicator for the market course, as highlighted by crypto trading expert Michaël van de Poppe.
Seems clear to me; waiting until next FED meeting and probably until then markets will be down, pricing in the worst and 100bps.
— Michaël van de Poppe (@CryptoMichNL) September 15, 2022
All in all, it is worth noting that crypto analysts have maintained that the Merge will have a long-term bullish impact on the general crypto space.