Ugh. It’s been a difficult couple of weeks for Ethereum investors. The DeFi leader has fallen below $1,700, trading roughly 55% under its New Year’s Day open of $3,722.
BTC Dominates
What will worry Ethereum supporters most is its recent underperformance versus Bitcoin. While the broader market has collapsed amid negative macro sentiment and the fallout from the Terra collapse, Bitcoin has staged small relief rallies in the past few days. Ethereum, by contrast, has largely trended downward.
The chart below illustrates ETH’s performance against Bitcoin. Ethereum outperformed Bitcoin throughout 2020 and 2021 during the bull market, as ETH benefited from higher volatility and a smaller market cap. But as market conditions shifted this year, Bitcoin reasserted its historical dominance during pullback periods.
Additional Problems
There are fundamental factors behind ETH’s decline beyond the general market slump. Chief among them is the long-promised Ethereum Merge—an upgrade that has been repeatedly announced, delayed and rescheduled. For many, the Merge has become synonymous with long delays and shifting timelines.
Last week’s events underscored how fragile the August target remains. The Beacon Chain experienced a seven-block reorganization (reorg), when blocks 3,887,075 through 3,887,081 were removed from the chain between 08:55:23 and 08:56:35 UTC.
In plain terms, a reorg occurs when a block that was part of the canonical chain is replaced by a competing block. Reorgs can result from either software bugs or malicious attacks.
The Ethereum beacon chain experienced a 7-block deep reorg ~2.5h ago. This shows that the current attestation strategy of nodes should be reconsidered to hopefully result in a more stable chain! (proposals already exist) pic.twitter.com/BkQrKuUlw1
— Martin Köppelmann 🦉💳 (@koeppelmann) May 25, 2022
Ethereum developer Preston Van Loon suggested the reorg was caused by a “non-trivial segmentation” between new and old client software, ruling out an attack. Ethereum co-founder Vitalik Buterin called that explanation a “good hypothesis.”
This, unfortunately, shows that the analysis by @gakonst and @VitalikButerin here was too optimistic when the article claimed re-org stability will improve in POS over POW.
We have not seen 7 block reorgs on Ethereum mainnet in years.https://t.co/G5g8acG3L8 pic.twitter.com/AvZ6ygZRxs— Martin Köppelmann 🦉💳 (@koeppelmann) May 25, 2022
My Thoughts
This incident is a hiccup rather than a catastrophic failure, but it emphasizes how uncertain the August Merge timeline remains. Many have long since stopped attempting precise predictions for this overhaul; the project’s scale and complexity appear to have been underestimated by parts of the crypto community.
The recent Ethereum drop—while Bitcoin remained relatively steady—likely reflects renewed doubt about the roadmap. With the market already sensitive and much of the upgrade priced in for August, any setback or technical concern can trigger selling pressure.
Industry sentiment is currently at one of its weakest points since the global financial crisis, and the sector faces intense scrutiny after the Terra collapse. For the market to recover confidence, Ethereum needs to deliver the Merge successfully.
I remain cautiously optimistic that August is still feasible. The Ropsten testnet merge has shown positive results, and that was a significant milestone before proceeding to mainnet. Still, I am mindful of false hopes—my own experience with repeated lockdown extensions back home taught me how plans can be pushed back repeatedly.
Let’s hope the Merge proceeds as planned and that past disappointments don’t repeat themselves.