Why the ETH course crashes despite a successful merge

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The whole crypto world waited for months for the merge, Ethereum’s biggest update. When things went smoothly on September 15, the market reacted – with the price falling nearly 20 percent over the week. A case of “Buy The Rumors, Sell the News?” James Butterfill, head of research at Coinshares, Europe’s largest digital asset manager, sees other forces at work. And hard times ahead. An interview.

James Butterfill, Head of Research at Coinshares. Source: Coinshares

BTC-ECHO: Was the merger a success for you?

James Butterfill: It went smoothly from a technical perspective. The validators that keep the network alive participate 99 percent. What many do not know: With its proof-of-stake model, Ethereum is also the first cryptocurrency to offer a five percent interest rate with simultaneous deflation.

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BTC-ECHO: Can you explain in more detail what makes Ethereum’s interest rate model unique?

Butterfill: Most cryptocurrencies generate their interest by redistributing fees and, above all, by printing more coins. Solana does that, for example. The total amount of tokens in circulation is growing every year. Ethereum is now the other way around. More tokens are burned than are issued. The supply will therefore decrease. I think between 1 and 2 percent annually.

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BTC-ECHO: The price of Ethereum fell after the successful merger. Did that surprise you?

Butterfill: Yes, very even. Many see this as a typical case of “buy the rumor, sell the news.” I think it’s just bad timing and has a lot more to do with the political situation. The FED has been aggressively raising interest rates for months. As a result, government bonds also yield good interest rates, with much less risk. In addition, the crypto sector is increasingly coming under pressure from US regulators.

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BTC-ECHO: How does it affect Ethereum?

Butterfill: The US financial regulator SEC claims that the network falls entirely under their jurisdiction because most of the validators are based in the United States. In addition, the SEC has repeatedly indicated that proof-of-stake blockchains are illegal securities in the sense that they are. Ripple has been in court for years for this reason. There is uncertainty about how hard regulators will hit Ethereum.

BTC-ECHO: When will market sentiment turn?

Butterfill: I’m afraid that won’t happen until the Fed changes interest rate policy and there is more regulatory clarity from the SEC.

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