Bitcoin and Ether Tumble. A Successful ‘Merge’ Can’t Outweigh Macro Pressures.

BitcoinBTCUSD –0.79% EtherETHEUR –3.45% , and other cryptocurrencies tumbled as traders “sold the news” after the successful completion of a long-awaited upgrade to the Ethereum blockchain network. Macro factors were adding more downward pressure on digital asset prices.

The price of Bitcoin has fallen 3% over the past 24 hours to $19,750. The largest digital asset plunged through the psychologically important $20,000 level, which has for months held up as a price point at which traders have been willing to buy. The price of EtherETHUSD –3.45%  —the native token of the Ethereum blockchain network—shed 10% to $1,475.

The hotly anticipated upgrade to Ethereum, known as “The Merge,” was successfully completed early Thursday, which initially gave digital asset markets a lift. The upgrade is designed to slash the blockchain network’s carbon footprint and usher in new ways for investors to earn a steady yield on their holdings—both of which are expected to boost long-term prices. But that wasn’t the case in the short-term.

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“Crypto traders are often used to ‘sell the event’ reactions in the cryptoverse and this Merge proved to be another example of just that,” said Edward Moya, an analyst at broker Oanda. “Ethereum is down significantly and volatility should remain elevated into the weekend.”

The macro environment wasn’t helping matters. While Bitcoin and its peers should theoretically trade independently of mainstream finance, tokens have shown themselves to be similarly vulnerable to macro pressures and swings in investor sentiment as other risk-sensitive assets, like stocks.

The latest crypto selloff began Thursday and continued into Friday in tandem with declines seen in the stock market, with the Dow Jones Industrial Average and S&P 500 both sliding lower amid renewed fears around inflation and the prospect of recession.

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“It was another synchronised selloff,” said Jim Reid, a strategist at Deutsche Bank. “Investors moved to price in yet more rate hikes from central banks, raising market fears about a hard landing ahead.” A hard landing refers to a scenario in which central banks are able to get inflation under control, but not without avoiding a recession.

Facing the highest inflation in 40 years, the Federal Reserve has aggressively tightened financial conditions this year, including delivering the largest interest-rate hikes in decades. This hawkish shift has knocked both stocks and cryptos this year.

A souring of investor sentiment came in the wake of inflation data this week that showed rising prices remain salient—paving the way for even tighter monetary policy from the Fed, which meets next week to decide its next move. Abysmal quarterly earnings from FedEx (ticker: FDX), which is seen as a bellwether for the global economy, have further raised the fears of investors about a worldwide economic slowdown.

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All this has not boded well for cryptos. Despite hype around the Merge, Bitcoin has seen its worst three-day stretch since a dramatic mid-June selloff knocked it down from $30,000, and Ether is in the midst of its longest losing streak in a month.

Beyond Bitcoin and Ether, altcoins—or smaller cryptos—were similarly weak. Solana dropped 5% and Cardano was 3% lower. Memecoins fared much the same, with DogecoinDOGEUSD –0.04%  and Shiba InuSHIBUSD –2.03%  each down 2%.

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