Ethereum plunges over 20% in a crypto-currency market that is totally collapsing!

Over the past week, the crypto-currency market has suffered a sharp correction. Ether (ETH), once again came under selling pressure, correcting over 20% on the weekly chart.

Ethereum is trading at $1597, with its market capitalization falling below the $200 billion mark. Since the beginning of July 2022, the price of ETH has risen sharply by nearly 100% from its low of $1,000 in just 45 days.

The recovery in the ETH price came amidst strong optimism surrounding the upcoming Merge upgrade. The Merge upgrade will transition the Ethereum blockchain to a Proof-of-Stake (PoS) network. Ethereum PoS will significantly improve Ethereum network scalability, performance efficiency, reduce gas costs, and more.

Two weeks ago, Ethereum developers successfully ran the Merge upgrade on the Goerli test network. This was the final dress rehearsal before the Merge upgrade on the main Ethereum network.

Risk sentiment turns negative

While there is no specific trigger for the recent drop, global market sentiment remains quite negative at this time. Although the U.S. has shown signs of slowing inflation, it remains well above 8.5% and the data in the coming months will determine the Federal Reserve’s actions.

Fed officials have indicated that there will be a slowdown in interest rate hikes. However, many analysts expect a 75 basis point increase next month in September. Therefore, investor sentiment is likely to become less risky going forward. Singapore-based QCP Capital noted that the Fed’s action has resulted in “A stall and decline in equities, a rise in yields and a general rise in the dollar“.

They also noted that “significant profit taking led to liquidations of leveraged long positions built up during a strong month-long rally“.

While ETH’s price has headed downward, ETH’s staking activity continues to remain strong in the lead-up to the merger. Citing data from OKLink, reporter Colin Wu writes:

“The number of ETH 2.0 repository contract addresses reached 13,343,768, and the staking rate exceeded 11.17%. About 36,000 ETH have been added weekly, and 153,000 new ETH have been staked since August.”

On the other hand, Ethereum network activity hasn’t really picked up in the recent recovery. In addition, the ETH price has been continuously trending downward in the context of the DeFi market slowdown. This shows that activity on the chain is still missing the price action.