It's been a whole five days since the Ethereum Merge, but the cryptocurrency is already losing market share and falling in value faster than Bitcoin. The main reason for this is the elevated risk associated with centralisation and the potential for pressure from financial regulators on coins using a PoS algorithm.

Since the merge, Ethereum has lost 15% against Bitcoin and seen its share of the cryptocurrency market shrink from 18.8% to 16.6%, despite the lack of any errors when making the transition from mining to proof-of-stake. The scepticism of market participants is due chiefly to the fact that the updated network is dominated by major players. For instance, Lido Finance and Coinbase account jointly for 45% of the total network, and if we add another two exchanges (Kraken and Binance), their share rises to 60%.

Coinbase and Kraken are registered in the US, while Binance has a branch in the country. In the event that US regulators make any demands to censor certain transactions, it is more likely than not that these organisations will comply. 

As practical experience shows, the autonomy of decentralised protocols is not immune to criticism either. When Tornado Cash found itself on the US Treasury Department's blacklist, the DeFi platform Aave took it upon itself to block all addresses that had received even one single transaction using the coin mixer. Therefore, the level of independence of the decentralised platform Lido Finance is debatable.

Head of the Securities and Exchange Commission (SEC) Gary Gensler added fuel to the fire when he announced the potential recognition of PoS coins as securities just a few hours after the Ethereum merge. If the regulator is able to uphold this status, it will require participants in crypto auctions to follow stricter rules.

Ripple's current position can help you understand the negative impact of such a decision. In fact, the SEC has been battling the company for several years now in a bid to have XRP declared a security. Since the legal proceedings began, XRP has dropped from third to seventh in the market capitalisation rankings, and, unlike the majority of the top coins, it has not been able to revisit its 2018 all-time high.

Miners have taken a considerable hit, too, as Ethereum was one of the most profitable coins to mine, with a top-of-the-range ASIC averaging a return of $79.50 per day. Chandler Goh, who called on miners to migrate to the EthPOW fork, now predicts that 90% of his colleagues will now exit the market on account of the decline in profitability. The EthPOW launch was not error-free, however, with Goh giving the new fork's debut a 5 out of 10.

StormGain analytics team

(cryptocurrency trading, exchange and storage platform)