Ethereum lost momentum after a week of profit trading. The elements of a potential continuation of the upward momentum have been laid in the macro-economic phase. Yet rising tensions between China and the United States have brought uncertainty back to the global financial world.
US Congresswoman and Speaker of the House of Representatives Nancy Pelosi visited Taiwan earlier this week. His visit is controversial, as Taiwan is considered a territory in open rebellion 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”. Thus, tensions regarding a potential conflict between the United States, Taiwan and China in the near future have arisen.
Investment firm Cumberland believes the above highlights the close correlation between Ethereum, the crypto market, and the traditional financial sector. The second crypto by market capitalization has had a short-term downward trend due to this uncertainty.
Ethereum and Bitcoin have been highly correlated with the Nasdaq 100, the index that tracks big tech stocks. cumberland believes that if the price of ETH can break through this correlation, the cryptocurrency may recover from previous highs. Until then, the bullish momentum for ETH seems limited.
The investment firm said the following about the fate of ETH prices as long as it remains correlated to traditional markets:
Until crypto is de-correlated from the broader macro backdrop, it will be difficult for these themes to generate meaningful alpha. That said, the upcoming merger threatens to re-establish digital asset markets as an independent asset class.
The merger is the highly anticipated event that will combine Ethereum’s execution layer with its consensus layer. This event could be large enough to give bulls further momentum and break the correlation with the Nasdaq 100.
Before the merger, the Ethereum ecosystem surpasses
The merger is already having a positive impact on the Ethereum ecosystem and the other two assets, Lido DAO and Ethereum Classic (ETC). A report from Kraken Intelligence shows that the ETH ecosystem has and continues to outperform the crypto market.
In July, the price of ETH, decentralized finance (DeFi), and non-fungible tokens (NFT) averaged 59%, 52%, and 35% profit, respectively. Thomas Perfumo, Head of Business Operations and Strategy at Kraken, had the following to say about the potential impact of The Merge:
ETH holds its value during this crypto winter against BTC, a significant deviation from the previous cycle. All eyes are on The Merge, the most important milestone in Ethereum’s scaling roadmap since the beacon chain launched in late 2020. If successful, the industry will have the clarity needed to take a longer-term perspective on Ethereum.