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By Lee Min-hyung
Fears of external monetary uncertainty are bringing jitters to the global crypto industry despite Ethereum's much-anticipated Merge upgrade, which many critics have considered a major turning point for revving up lukewarm crypto sentiment.
The world's second-largest cryptocurrency by market capitalization completed Thursday the system upgrade with an environmentally friendly proof-of-stake mechanism. This upgrade raised hopes for the introduction of smarter contracts across the crypto industry, but there was little effect in terms of boosting its valuation on the market.
According to data from crypto price tracker, CoinMarketCap, the price of Ethereum has been on the sharp decline for the past week. It was traded at around $1,750 as of Sept. 12, but plunged to $1,300 as of 2:30 p.m. Monday.
The prices of other major cryptocurrencies also remained weak during the same period. Bitcoin was traded at around $22,300 last Monday, but failed to defend the $20,000 mark in a week, with its value tumbling down to $18,800 on Monday afternoon.
This situation was caused mainly by external macroeconomic fears ahead of the U.S. Fed's likely hawkish decision on monetary tightening. The market expects the Fed to take another giant step and raise its key interest rate by 75 basis points during the Federal Open Market Committee (FOMC) meeting slated for Sept. 20 and 21.
The crypto industry remains more than vulnerable to monetary tightening than any other asset markets ― such as stocks or real estate ― so chances are that major and minor cryptocurrencies will extend their declines from a near-term viewpoint due to the Fed's unwavering hawkish moves. But there also stands a possibility that investors will engage in a buying spree of major cryptocurrencies after the monetary uncertainty is cleared away following the FOMC meeting.
The unceasing fears of inflation also add more burden to the overall crypto market after the U.S. Labor Department said last week that its consumer prices rose 8.3 percent in August from a year ago.
Market analysts said that the crypto market will likely remain in the doldrums until the Fed and global monetary authorities indicate that they will end their cycle of rate hikes.
"The scorching inflation triggered a stock market selloff that is also dragging Bitcoin along for the ride," Edward Moya, senior market analyst at OANDA, said. "Hopes of a soft landing, the end of the Fed hiking cycle, and a resilient consumer, are fading away. Bitcoin's plunge reminded traders it remains the ultimate risky asset and is vulnerable if a stock market selloff deepens."
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