The price of Ether (ETH), the native cryptocurrency of Ethereum, plunged harder than Bitcoin (BTC) in the recent pullback.
After reaching an all-time high on Coinbase, the price of Bitcoin fell steeply by over 9% within several hours. In the same period, Ether corrected by over 11%, following a marketwide pullback.
The deep correction in Ether comes as a surprise because of the Ethereum 2.0 network upgrade launch. On Dec. 1, the Eth2 Beacon Chain released on the mainnet, marking an important milestone for Ethereum.
What led to Ether's sharp correction?
Eth2 is a key network upgrade for the Ethereum blockchain that improves its scalability and transaction capacity. Prior to the upgrade, the network was able to process around 15 transactions per second.
After the upgrade, Ethereum will be able to scale to thousands of transactions per second, potentially more with sharding over the long term.
This is a fundamentally optimistic upgrade for the Ethereum network because it will allow decentralized applications to operate without the barriers of scalability. It would also allow new decentralized finance cycles to become more sustainable, easing user experience.
Ether's correction after the Eth2 upgrade could have been expected due to the tendency of the market to buy rumors and sell the news. For instance, when the Eth2 upgrade was confirmed in late November, Ether price similarly dropped from around $620.
Still, the 11% decline in the price of Ether within just two hours has caught many traders off guard. The significance of the Eth2 upgrade and the implications it carries likely led the market to expect more short-term resilience from Ether.
Industry executives have also been highly optimistic about the medium- to long-term growth trajectory of Ethereum after the Beacon Chain release. This likely added to the overall positive market sentiment around ETH.
Joseph Lubin, co-creator of Ethereum and founder of ConsenSys, described Eth2 and proof-of-stake as a monumental upgrade. He said:
"The launch of the #Eth2 Beacon Chain is characteristic of the emergent, open-source ethos that attracts so many to Ethereum in the first place. More than 27,000 validators from around the globe are now participating in the new #Eth2 consensus model. Proof of Stake is a monumental upgrade of the crypto-economic incentives that already make Ethereum an automated, objective foundation for trust. We are collectively deepening the commitment to building a maximally decentralized network."
What’s next for Ether?
Traders are anticipating a deeper pullback in the near term, or at least some consolidation. The futures market took a large hit when BTC abruptly dropped, causing havoc across the derivatives market.
A pseudonymous trader known as “TraderKoz” said that Ether would become compelling once it consolidates above $620 again. The $561 level remains a key support level for ETH in the near term if the pullback continues. The trader said:
“We're getting some nice PA forming around Monday's range and a nice tag of the weekly open. Wouldn't be surprised if we consolidate around the midrange here for a bit. I'll be interested in more longs once we trade above $620.”