Buy the rumor, sell the news.
The Ethereum Merge completed successfully, but the immediate price reaction disappointed many investors. Here, we examine the on-chain developments and market signals that followed the Merge.
Funding rates turn positive
Before the Merge, Ethereum’s funding rates fell to historic lows, drawing headlines but ultimately reflecting predictable market behavior. Holders of ETH stood to receive potential ETHPoW tokens, so many investors hedged their exposure by going long spot ETH while shorting ETH futures. That activity created a clear arbitrage opportunity: investors who wanted to capture the PoW airdrop typically shorted futures while holding spot, which pushed funding rates down.
After the Merge, those record-low funding rates have normalized and even moved slightly positive. In short, the market returned to ordinary conditions following the event-driven distortions.
Why did Ethereum fall after the Merge?
On Wednesday morning, while I had breakfast (toast and a honey croissant), Ethereum completed the Merge at block 15,337,393.
ETH initially traded around $1,598 and popped to roughly $1,620—a modest 1.4% gain. But that strength was fleeting. By Friday morning (this time eating oats and blueberries), ETH was trading near $1,470, about 8% below the Merge level.
As it turned out, the Merge behaved like a classic “sell-the-news” event. Comparing with Bitcoin, which traded only about 2% below its level at the same time, Ethereum underperformed.
Options markets also signaled bearish sentiment. The volatility smile during the brief post-Merge uptick showed a bearish divergence: implied volatility was higher for lower strike prices—often exceeding 100%—indicating traders were pricing in scenarios where the news would be sold. In other words, open interest by strike showed more puts than calls, suggesting traders were placing bets on downside risk rather than upside.
The Federal Reserve ultimately sets the tone
Of course, macro factors remain crucial. The Federal Reserve’s policy meeting on September 20–21 is a focal point, and following weaker-than-expected inflation indicators this week, markets widely expect the Fed to respond. That prospect will likely continue to dominate price action in the near term.
It’s important to recognize that the presence of a major event does not guarantee a price rise—this is the familiar “buy the rumor, sell the news” dynamic often observed in equity markets and now in crypto.
That said, from a long-term perspective the Merge is now behind us and it proceeded smoothly. That outcome is a major technical success and fundamentally bullish for Ethereum’s future. Going forward, price action will depend as much on macro conditions and the Fed’s decisions as on on-chain progress.