Written by

Vetle Lunde

Senior Analyst

20 Sep 2022

The sell-the-news event: Ethereum plunge and fork fire sale

Source: Tradingview (Binance)

Ether has struggled since the merge, experiencing a sharp drop in the last five days. Nevertheless, despite the poor price action, the merge was successful, and Ethereum is now a Proof-of-Stake network.

Ether has struggled since the merge, experiencing a sharp drop in the last five days. Nevertheless, despite the poor price action, the merge was successful, and Ethereum is now a Proof-of-Stake network.

In advance of the merge, traders were cautiously positioned in derivatives and held spot exposure in anticipation of merge airdrops. We drill into the performance of Ether forks below and how perp funding normalized promptly after the merge in this weeks derivatives update.

Concerns have also been raised regarding staking concentration among Ether stakers, a topic we explore in this article.

Ether traded idly after the merge, and volatility remained low until U.S. markets opened down. The ETH blow was related to a correlated environment to risk assets, but excess leverage from long traders contributed to exacerbating Ether’s relative underperformance versus BTC.

Since the merge, Ether (ETH) is down 17% in USD and down 13% compared to BTC, with ETHBTC currently trading at 0.07. ETH has found support at 0.07 ETHBTC, which represents the average ETHBTC price over the last 365 days.

ETH forks underperforming ETH since merge

Ethereum proof of work forks has seen losses extending 66% since launching five days ago.

Source: Tradingview (FTX, Coinbase, Poloniex)

Ether has not struggled in isolation, Ether forks have experienced severe headwinds, and both ETHW and Poloniex’s competitor fork EthereumFair (ETF) have seen more than two-thirds of their valuation slashed since launch.

The poor performance of forks is no surprise. Forks will struggle to gain meaningful adoption and hold no significant economic DeFi activity. The selling pressure in ETHW and ETF is likely caused by Ether holders dumping their airdropped tokens.

ETHW plunged as low as 80% from its listing on FTX. Since its low, ETHW has recovered slightly, suggesting that the airdrop selling pressure has stopped for now.

Ethereum Classic has also underperformed versus ETH. Amid the merge, many miners migrated to ETC, leading ETC’s hashrate to peak at 300 TH/s. However, as the difficulty has increased in ETC, the hashrate in ETC has declined to 186 TH/s.

The hashrate rally and plunge in ETC is best explained by looking at revenues. ETH used to yield miners $20m in revenue per day versus less than $1m in revenues generated from ETC. Thus long-term mining ETC is far from viable on the scale as ETH mining once was.

ETC has declined 25% since the merge. In sum, all forks have underperformed Ethereum.