After a week trading profitably, Ethereum lost steam. Macro-economic analysis provided the necessary elements to support a possible extension of bullish momentum. However, the uncertainty surrounding the global financial system has been heightened by rising tensions with the United States and China.
Nancy Pelosi (US Congresswoman, Speaker of the House of Representatives) visited Taiwan earlier in this week. The controversial visit of Nancy Pelosi to Taiwan comes as a surprise, since Taiwan is an open rebel territory by China.
The latter responded to Pelosi’s visit by firing artillery near Taiwan and announcing military exercises, the Asian giant considers this an “act of provocation”. There was a possibility of a conflict between China and Taiwan in the immediate future.
Cumberland Investments believes that the above illustrates the close correlation between Ethereum and traditional finance. As a result, the market cap of second crypto has trended downward in short term.
Both Bitcoin and Ethereum have shown high correlation with the Nasdaq 100 Index, an index which tracks large tech stocks. Cumberland believes that if ETH’s price can break this correlation, the cryptocurrency will be able to reclaim previous highs. Until then, ETH’s bullish momentum seems limited.
The investment firm said the following on ETH’s price fate as long as it remains correlated with legacy markets:
These themes will struggle to produce meaningful alpha until crypto decorrelates with the macro backdrop. The upcoming merger could reestablish digital assets markets as an independent asset type.
The Merge is the highly anticipated event that will combine Ethereum’s execution layer with its consensus layer. The Merge could provide bulls new momentum, and possibly break the Nasdaq 100 correlation.
The Ethereum Ecosystem was outperforming before The Merge
Already, the Merge has a positive effect on Ethereum’s ecosystem and the two other assets Lido DAO (ETC) and Ethereum Classic. Kraken Intelligence’s report shows that the ETH market has outperformed the crypto market.
In July, ETH’s price, decentralized finance (DeFi) and non-fungible tokens (NFTs) recorded an average of 59%, 52%, and 35% profits respectively. Thomas Perfumo is Head of Strategy and Business Operations at Kraken. He spoke about the possible impact of The Merge.
This crypto winter has seen ETH holding steady against BTC. A significant change from the previous cycle. All eyes are on The Merge, the most significant milestone to Ethereum’s scaling roadmap since the launch of the beacon chain in late-2020. A successful Merge will give the industry the confidence to look longer-term at Ethereum.