Why did the Ethereum 2.0 beacon chain mainnet officially launch, but the ETH price fell sharply?

The price of Ethereum’s native cryptocurrency, ether (ETH), has fallen more than bitcoin (BTC) in the recent pullback.

After reaching an all-time high on Coinbase, the price of Bitcoin fell sharply by more than 9% in a few hours. During the same period, Ethereum corrected by more than 11% as the market corrected.

Ethereum’s sharp correction was surprising due to the launch of the Ethereum 2.0 upgrade network. On December 1, the ETH 2.0 beacon chain was launched on the mainnet, marking a major milestone for Ethereum.

ETH/USDT 4-hour chart. Source: TradingView.com

What caused Ethereum’s sharp correction?

ETH 2.0 is a key network upgrade for the Ethereum blockchain that will improve its scalability and transaction processing capabilities. Before the upgrade, the network was able to process about 15 transactions per second.

After the upgrade, Ethereum will be able to scale to handle thousands of transactions per second, and potentially more in the long run in a sharded manner.

This is a fundamentally optimistic upgrade for the Ethereum network as it will allow decentralized applications to run without scalability barriers. It will also make the new decentralized finance cycle more sustainable, improving the user experience.

Since the market tends to buy rumors and sell news, a correction in the price of Ethereum after the ETH 2.0 upgrade can be expected. For example, when the ETH 2.0 upgrade was confirmed in late November, the price of Ethereum also fell from around $620.

Still, many traders were caught off guard by the 11% drop in Ethereum prices in just two hours. The importance of the ETH 2.0 upgrade and the impact it brings may have led the market to expect more short-term resilience in Ethereum.

After the release of the beacon chain, industry executives are also very optimistic about Ethereum’s medium- and long-term growth trajectory. This is likely to increase the overall positive market sentiment around ETH.

Joseph Lubin, co-founder of Ethereum and founder of ConsenSys, described ETH 2.0 and proof of stake as landmark upgrades. He said:

“The launch of the ETH 2.0 Beacon Chain is emblematic of the emerging open source ethos that attracted so many people to Ethereum in the first place. Now, over 27,000 validators from around the world are participating in the new ETH 2.0 consensus model. Proof of Stake is a major upgrade to the cryptoeconomic incentives that already make Ethereum an automated, objective foundation for trust. Together, we are deepening our commitment to building the largest decentralized network.”

What’s next for Ethereum?

Traders are expecting a bigger pullback in the near term, or at least a period of consolidation. When Bitcoin suddenly dropped, the futures market was hit hard, causing chaos throughout the derivatives market.

An anonymous trader named "TraderKoz" said that once Ethereum consolidates above $620 again, it will become attractive. If the pullback continues, the $561 level will still be a key support level for Ethereum in the short term. The trader said:

“Ethereum had a nice start to the day on Monday. We would not be surprised if ETH consolidates in a moderate range for a while. I would be interested in additional long positions once ETH price rises above $620.”

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