Ether Leads Crypto Recovery on Merge Confirmation, but Traders Remain Cautious

Buying ether ahead of the Merge is likely an overextended play, one trader said.

AccessTimeIconAug 25, 2022 at 1:25 p.m. UTC
Updated May 11, 2023 at 6:41 p.m. UTC

Ether (ETH) rose some 5% in the past 24 hours to lead a recovery among major cryptocurrencies as Ethereum developers confirmed The Merge’s dates on Wednesday.

The Bellatrix upgrade will activate on the Beacon Chain on Sept. 6, as reported. The upgrade is responsible for setting the rest of the Merge process in motion, with developers hinting that they're aiming for it to happen on Sept. 15-16.

Bitcoin recovered over $21,500 on Thursday morning after stabilizing on Wednesday following a weekend sell-off. Broader equity markets rose, with China stimulus driving growth in the Asian session and U.S. premarket futures pointing to an upside ahead of this week's Jackson Hole, Wyoming, symposium.

Traders, however, said that while the Merge event was likely driving short-term price appreciation in ether, the long-term outlook for the asset remained muted considering a weak macroeconomic sentiment and bitcoin technicals pointing to a downside.

“With Ethereum set to become a proof-of-stake blockchain at the beginning of September, the ether tokens might hold firm for a while,” said Rafal Tworkowski, a market analyst at forex trading firm Conotoxia, told CoinDesk in a Telegram message.

But Tworkowski said ether’s technical charts pointed “to the downside” – with ether sliding below its 50-day moving average – while adding that investors were likely to get more upside on Merge-related tokens such as lido DAO (LDO), ethereum classic (ETC) and optimism (OP).

Infinity Exchange founder Kevin Lepsoe said in a Telegram message that confidence about the Merge was driving growth in the stablecoin market. “With more confidence around the Merge, we’re seeing institutions driving a net outflow of stablecoins from lending protocols and thus a rise in borrowing costs,” Lepsoe said.

“Long Merge plays are overextended in my opinion, however, with this rise being more short-term in nature,” he added.

Elsewhere, Ahmed Ismail, CEO of liquidity aggregator Fluid said that while the current positive sentiment in the market was largely due to the Ethereum news, the broader sentiment in crypto markets was “strongly linked” to the global macro-economic climate, “which is currently not very optimistic.”

“Expecting a volatile winter, at least until the end of 2022,” Ismail said in a Twitter message.

However, Andrei Grachev, a managing partner at DWF Labs, took an opposing view to that sentiment, pointing to bitcoin’s price performance as an indicator of the broader crypto market.

“One of the best indicators to the sentiment of the crypto market is the price of bitcoin,” Grachev told CoinDesk in a Telegram message. “We are almost or maybe even already at the downside of the market cycle. Bitcoin [BTC] price or market capitalization could still go lower than the current level, but regardless, the upside opportunity is still enormous.”

“Crypto is volatile by nature and there are no actual signs that the volatility will decrease any time soon, mostly due to the size of the overall market cap, which is relatively small compared to other traditional markets,” Grachev added.

CORRECTION (Aug. 26, 13:59 UTC): Corrects spelling of Lepsoe in seventh paragraph.


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Shaurya Malwa

Shaurya is the Deputy Managing Editor for the Data & Tokens team, focusing on decentralized finance, markets, on-chain data, and governance across all major and minor blockchains.