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The reason why Ethereum has been dropping is due to the crashing crypto market.
The Ethereum network became popular in the investment community after its network started supporting the development of and the creation of new applications on its infrastructure. But since its inception, the investment community has been facing several issues regarding its transaction costs and speed. Ethereum also had the reputation of possessing high gas fees which diverted affordability-seeking investors to look for other investment options. But the Merge upgrade is expected to alleviate all these issues and make the ETH network a far more sustainable option for investment.
But despite these developments, there are several speculations around the Merge upgrade that are making bullish investors worry about the prospects of crypto. Analysts believe that in a bearish market situation, a bullish price rally might provide relief to the investors but it is temporary and should not be the basis of any investment strategy. But looking at the current state of Ethereum, experts believe that the currency will fall back to US$1,100.
Various factors affecting Ethereum’s price
The reason why Ethereum has been dropping is due to the crashing crypto market. But there are a lot of other factors why it is dropping faster. The slow adoption of the Ethereum blockchain is another reason. The high gas fee and slow chain are why Ethereum is attracting fewer users.
But the team is working on the Ethereum network upgrades. With the ongoing upgrades, Ethereum is going to address scaling and gas costs to increase chain adoption. Therefore, the coin is projected to start its bull run soon after these upgrades are completed.
Initially, Ethereum investors had already started to lose interest in Ethereum 2.0 due to its already-delayed launch. Now, analysts are speculating that Buterin’s actions to not reveal the value of ETH 2.0 might act as another blow to the Ethereum investors, who might end up losing their interests again! Nevertheless, ETH rose exponentially after the new interest rate hike by the Fed, to reduce the impact of the ongoing inflation, which also triggered a price rally in crypto and stock markets. For now, the Ethereum developers seem to be on the right track to recovery, even after its massive collapse in 2022.
Panic Selling due to losses?
There is no direct correlation between ETH pricing and stETH. It can only be redeemed for ETH once the merger is complete, which is yet to be determined. However, the token’s primary function as collateral on Defi platforms like AAVE and Lido could be disastrous for the industry. Shocking losses in stETH have triggered panic selling in Ethereum.
stETH, which represents Ethereum 2.0 beacon chain-locked ETH, is commonly used as collateral on Defi services to borrow more ETH.
However, if the token’s price falls sharply, positions that have borrowed ETH with the token may be liquidated. Holders will be forced to sell their stETH on the open market, causing the token’s price to plummet even further.
Should you invest in Ethereum right now?
Ethereum is still the second-largest cryptocurrency in the market and is considered a profitable cryptocurrency investment. Despite all the ups and downs, some analysts and ETH believers think Ether definitely has the potential to grow further in the long term. Initially, after its price rally in 2021, experts believed that its value might end up surging over 400% by the end of 2022. Even though crypto might not demonstrate itself as a profitable cryptocurrency right now, buyers are quite optimistic about its upcoming price rally in 2022.
Bitcoin, Ethereum, and other cryptocurrencies are just as likely to fall as they are to climb. If you’re a long-term investor, short-term volatility shouldn’t drastically alter your crypto investment strategy.
Experts recommend sticking to bitcoin and Ethereum, the two most well-known and established cryptocurrencies, and allocating no more than 5% of your investment portfolio to crypto. Always prioritize more important aspects of your finances — like saving up for an emergency, contributing to a traditional retirement account, and paying off high-interest debt — before investing in crypto. You should only invest what you’re OK with losing, experts say.