Crypto nurses losses as Ethereum upgrade looms

Cryptocurrency markets on Wednesday took stock of sharp losses triggered by hardening expectations of restrictive US monetary policy and braced themselves for a possible test before the upgrade of the Ethereum blockchain.

Bitcoin was near US$20,000 in the morning in London after a near 10 per cent plunge a day earlier.

Ether, the native token of Ethereum, struggled to hold above US$1,600.

Stocks, bonds and digital tokens plunged on Tuesday after hot US inflation data pointed to further large Federal Reserve interest-rate hikes.

The Fed has no alternative but to "pump the brakes, tighten financial conditions, ratchet real yields higher, and that's just going to crunch on risky assets", Mr Charlie McElligott, cross-asset macro strategist at Nomura Securities International, said on Bloomberg Television.

Such macroeconomic factors are currently overshadowing the Ethereum revamp, known as the Merge.

But the upgrade to slash the blockchain's energy use was due late on Thursday, and will come back into the spotlight.

An array of financial services is built atop Ethereum, making it a critical crypto highway, so any glitches in the software shift from a so-called proof-of-work to a proof-of-stake paradigm could ripple across digital assets.

"There's been so much testing that the Merge itself is overwhelmingly likely to be very smooth," said Mr Joseph Lubin, a co-founder of Ethereum, drawing a comparison with an overnight iPhone update.

Major Ethereum-based services are ready for the upgrade, but some smaller ones may need to do more work, he added.

An Ether rally since mid-June, spurred partly by buzz around the Merge, has cooled of late.

Both Ether and Bitcoin have more than halved in 2022. Bitcoin could drop below US$18,000 before prices reach a bottom next month, Mr Mark Newton, head of technical strategy at research company Fundstrat, wrote in a note on Tuesday.

BLOOMBERG