Why Did Ethereum’s Price Drop After the Successful Merge? Can ETH Become Deflationary?

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The Ethereum Merge was a monumental achievement in blockchain history—seamlessly transitioning one of the largest and most influential networks from Proof-of-Work (PoW) to Proof-of-Stake (PoS) without downtime. Often compared to "changing a plane’s engine mid-flight," the technical success was undeniable. Yet, despite this milestone, Ethereum’s native token, ETH, experienced a notable price decline post-Merge. This raises an important question: Why did ETH fall after such a successful upgrade? And more importantly, can ETH become a deflationary asset in the long run?

Let’s explore the key factors behind the price movement and assess Ethereum’s future potential.

Buy the Rumor, Sell the News

One of the most common patterns in financial markets is “buy the rumor, sell the news.” This strategy reflects how investor behavior often drives prices upward in anticipation of a major event—only to see them drop once the event occurs.

In the months leading up to the Merge, institutional and retail investors alike positioned themselves ahead of the expected supply shock and environmental improvements. As confidence grew, so did demand for ETH. But once the Merge was successfully executed, many traders took profits. This wave of selling pressure contributed significantly to the short-term price correction.

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This phenomenon isn't unique to crypto—it's observed across stock markets, commodities, and forex. The key takeaway? Market expectations had already been priced in. Once reality matched expectation, momentum stalled.

Limited Immediate Performance Gains

Despite its technical brilliance, the Merge did not deliver immediate improvements in network performance that users could feel.

Will Gas Fees Drop After the Merge?

Not yet. While long-term scalability solutions like sharding are expected to drastically reduce transaction costs, they are not part of the Merge. Sharding is now projected for 2025 or later, meaning high gas fees will persist on Layer 1 for the foreseeable future.

As a result, many view the Merge as Phase 1 of a multi-year upgrade, laying the foundation for future scalability rather than solving current bottlenecks.

“The Merge was never about speed or low fees—it was about sustainability and security.”

Until sharding rolls out, Layer 2 solutions (like Optimism, Arbitrum, and zkSync) remain critical. These protocols offload transactions from the mainnet, offering faster speeds and lower costs today. Their importance has only increased post-Merge.

Is Transaction Speed Faster Now?

Technically, yes—but only marginally. Under PoW, Ethereum produced a block every 13–14 seconds. With PoS, that improved to approximately 12 seconds per block. While this enhances finality and network efficiency slightly, it’s not noticeable to most users.

So while Ethereum is now more energy-efficient and secure, user experience remains largely unchanged in the short term.

Macroeconomic Headwinds

Timing played a crucial role in ETH’s price action. The Merge occurred amid one of the most challenging macroeconomic environments in decades.

Just days before the transition, the U.S. Bureau of Labor Statistics released CPI data showing persistent inflation. Markets interpreted this as a signal for further Federal Reserve interest rate hikes, which typically lead to:

Crypto assets, including ETH, are increasingly correlated with tech stocks and other growth-oriented investments. When Nasdaq tumbles, crypto often follows.

Thus, even though Ethereum underwent a historic upgrade, broader market pessimism overshadowed technical achievements. Investor focus shifted from innovation to survival in a high-interest-rate environment.

The Path to Deflation: Can ETH Become a Scarce Asset?

Here’s where Ethereum’s long-term story gets exciting.

Before the Merge, ETH had an inflationary supply model—new coins were continuously issued to miners. But under PoS, issuance dropped by over 80%, drastically slowing down new supply.

According to data from Ultrasound.money, a leading Ethereum supply tracker:

That’s a massive reduction.

But here's the real game-changer: Ethereum can become deflationary when transaction activity exceeds new issuance.

How? Through EIP-1559, which burns a portion of gas fees with every transaction. When network usage is high, more ETH is burned than is issued—resulting in net deflation.

For example:

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This means ETH isn’t just digital money—it’s potentially a yield-bearing, scarcity-driven asset, combining traits of both currency and equity.

Long-Term Outlook: Building Through the Bear Market

While short-term price movements reflect sentiment and macro trends, Ethereum’s fundamentals continue to strengthen.

If you believe in Ethereum’s role as the foundation for decentralized finance (DeFi), smart contracts, and next-gen internet applications, then current market conditions may present a strategic accumulation opportunity.

Historically, bear markets have been ideal for building positions ahead of the next bull cycle—potentially peaking around 2025–2026.

“The best time to plant a tree was 20 years ago. The second-best time is now.”
— Ancient Proverb (often quoted in crypto circles)

While no one can predict exact price levels, those who understand Ethereum’s ecosystem and technological trajectory may find today’s valuations attractive for long-term holding.

Frequently Asked Questions (FAQ)

Q: Did the Ethereum Merge fail because ETH price dropped?

No. Price movements do not reflect technical success. The Merge was a resounding engineering achievement. Market reactions are influenced by speculation, profit-taking, and macro factors—not protocol performance.

Q: Is Ethereum truly deflationary now?

It can be—under high network usage. During periods of heavy traffic (e.g., NFT mints or DeFi surges), more ETH is burned via EIP-1559 than is issued through staking rewards. This creates temporary deflation, though overall supply trends depend on activity levels.

Q: When will Ethereum’s gas fees go down?

Significant fee reductions are expected after sharding launches—currently projected for 2025 or later. Until then, Layer 2 rollups offer scalable alternatives with lower costs.

Q: Should I invest in ETH during a bear market?

That depends on your risk tolerance and belief in Ethereum’s long-term vision. Many investors use bear markets to accumulate assets at lower prices before the next bull phase.

Q: What makes ETH different from other cryptocurrencies?

ETH powers the largest smart contract platform, supports thousands of decentralized apps (dApps), enables DeFi innovation, and now operates sustainably under PoS—making it unique in both utility and environmental impact.

Q: How does staking affect ETH supply?

Over 25% of circulating ETH is staked. This locks up supply and reduces liquidity in the market, adding another layer of scarcity on top of issuance cuts and fee burning.

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Ethereum stands at a pivotal moment—not just technologically, but economically. While short-term volatility may deter some, those focused on innovation and long-term value creation see a network evolving into something far greater than just a cryptocurrency: a foundational layer for the future of digital ownership and decentralized systems.

Whether ETH becomes fully deflationary depends on adoption. The more people use Ethereum, the more value it can capture—and the scarcer it becomes.

The journey isn't over. It's just entering a new phase.