Ethereum Liquidations Hit $759M Since The Merge. What Lies Ahead?

Last week, Ethereum ETH/USD formally abandoned the energy-intensive, miner-based approach it had previously used to process changes to its decentralized ledger, by switching from proof-of-work to proof-of-stake.

This was a momentous change.

In the crypto community, The Merge was celebrated like a holiday, both digitally and physically, with watch parties that included speeches, music, and even special visitors.

Following last week's historic technological upgrade of the Ethereum network known as The Merge, the price of the second-largest cryptocurrency by market value has fallen around 8% as investors weigh its potential long-term advantages above its short-term price effect.

Ethereum is currently trading around the $1335 level.

According to statistics from Coinmarketcap, Ethereum's market value has drastically decreased to a little over $160 billion, with volumes remaining stable at about $17.5 billion over the past day.

Investors will soon be focusing on Ethereum's "Shanghai" upgrade, which will enable users to withdraw staked ETH, which will launch next year.

Meanwhile, according to statistics from Coinglass, since Sept. 15, Ethereum has seen $759.11 million in liquidations.

Over $497 million, or about 70% of these liquidations, came from bullish cryptocurrency traders who held long positions.

Why the massive liquidations?

Khaleelulla Baig Founder and CEO of KoinBasket says that the primary reason for Ethereum losing steam after The Merge is the U.S. government’s indication of treating Ethereum as a security instead of a commodity, thereby creating fear and uncertainty of tighter regulations and tax implications.

“Trials and experiments carried out by mainstream Web2 institutional investors to test the waters in the crypto market are also causing some negative pressure on the overall crypto market spilling over to Ethereum, the day these deep pocket investors become firm believers in the borderless and decentralized monetary world of Web3, we may witness sound cryptocurrencies reacting positively to rising interest rates and ballooning fiscal deficit,” he says.

According to Neeraj Khandelwal, co-founder of the crypto exchange CoinDCX, there have been massive Ethereum liquidations since The Merge, leading to downward pressure on the price.

Khandelwal says this is because there are some speculative positions being unwound and selling pressure from previous Ethereum miners who have accumulated large ETH positions.

“This has been further compounded by a weak macroeconomic environment and a bearish sentiment across all markets due to the continued hike in interest rates by the Fed. Overall, however, we are very bullish on the impact of the Ethereum merge and future milestones in bringing efficiency and scalability to the DeFi world,” he says.

ETH Merge is not a sentiment changer

One of the reasons for the cascading liquidations was a widespread misunderstanding that markets trade more on information than they do on events, and The Merge has seen widespread information for some time now, says Michael Young, product operations manager at AscendEX Earn.

He adds that the actual unfolding of the event does not represent proper ground to switch sentiment on ETH from bearish to bullish, as the spot price of ETH over the past few months has reflected what the market would value PoS ETH (rather than PoW) given the current macro backdrop.

The road ahead

Mech COO and Co-Founder, Kyle Klemmer says the investors who are liquidating now are most likely doing it for external economic factors like inflation and rising interest rates.

“Eth prices and crypto prices as a whole will continue to fall. None of that is a byproduct of The Merge.”

According to Garry Krugljakow, founder of GOGO Protocol, The Merge has been a success, but ETH has not yet demonstrated it can decouple from Bitcoin’s plummeting value, much less gather the momentum for a so-called flippening.

“And with the expected rate hikes by the Fed, it’s no shock that long positions received the biggest battering. Still, it would take a tremendous amount of selling to bring crypto down below June lows, but caution should be on everyone’s mind right now,” Krugljakow says.

Are you ready for the next crypto bull run? Be prepared before it happens! Hear from industry thought leaders like Kevin O’Leary and Anthony Scaramucci at the 2022 Benzinga Crypto Conference on Dec. 7 in New York City.