Here’s how Ethereum lost steam days before the merger, while Bitcoin remains stable

With the highly anticipated Ethereum Merge potentially just days away, the second largest cryptocurrency has led the charge for outflows as investors question the transition's viability. Ether fell around 3.5% on Monday, while bitcoin gained about 2% to sit comfortably above $20,000, level analysts have been watching closely since its drop earlier this month. Traders are treading carefully as the Merge is expected to be completed in the next two and a half days. Investors withdrew $62 million from ether products in the week ending September 9. This amounts to nearly the weekly outflow of crypto investments, totaling $63 million and marking the fifth consecutive week of declines. Investors withdrawing from ether may highlight investor concern that the event may not go as planned.

The Merge comes at a particularly turbulent time for cryptocurrency. In the run-up to the Merge, Ethereum had a very volatile summer, and 30-day volatility remains at its highest level since July 2021. The volatility of ether has diverged sharply from that of bitcoin, and the spread between the two assets is now at its widest in more than a year. Throughout the summer, ether trade volumes, both spot, and derivatives surpassed bitcoin volumes multiple times as traders made predictions ahead of the Merge. Over the past week, ether funding rates have dropped to their lowest levels in more than a year, indicating a combination of bearish sentiment and substantial hedging by traders in anticipation of any potential Merge issues. On the other hand, Bitcoin funding rates have recently flipped positive as the asset enjoys a burst of bullish sentiment.

Not everyone believes the Merge is beneficial to Ethereum

The Merge, which supporters tout as an update that will make transactions faster, safer, and less energy-intensive, is not universally regarded as a positive step by the industry. Some have argued that Proof-of-Stake inherently leads to centralization, the researchers wrote in their report. In light of recent Tornado Cash events, many concerns have been raised regarding the transition to PoS and the implications of a concentrated stake among a few actors. Researchers added that if regulators target any validator who acts maliciously toward the Ethereum network, the entire blockchain's security and decentralization will be jeopardized.

Traders will also be watching economic data this week. The Consumer Price Index will be released on Tuesday, and consumer sentiment will be released on Friday. In recent months, crypto markets have largely tracked equities as speculation on inflation and monetary policy has continued. This week is massive for crypto, and if bitcoin can stay above $21,000 and ether can hold $1,600, that could pave the way for new money to come into the crypto space. Many remain skeptical of the September crypto rebound, but if price action does not turn south here, momentum traders may be able to trigger a decent move higher.