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Why did Ethereum Classic jump, as Ethereum Merge countdown begins?

By Frances Yue

Hello! Welcome back to Distributed Ledger, our weekly crypto newsletter that reaches your inbox every Thursday. I'm Frances Yue, crypto reporter at MarketWatch. I am back from vacation and will walk you through the latest in the digital asset market.

Find me on Twitter at @FrancesYue_ to send feedback, or tell us what you think we should cover. You can also reach me through email to share your personal stories with crypto.

Crypto in a snap

Bitcoin lost about 3.3% over the past seven days, and was trading at around $19,134 on Thursday, according to CoinDesk data. Ether gained 4.2% over the seven-day stretch to around $1,618. Meme token Dogecoin traded 0.9% lower while another dog-themed token, Shiba Inu, added 0.7% from seven days ago.

Crypto Metrics

Biggest Gainers     Price    %7-day return 
Terra Luna Classic  $0.0005  126.7% 
TerraClassicUSD     $0.04    41.6% 
EOS                 $1.62    17.9% 
Cosmos Hub          $13.7    16% 
Rocket Pool         $26.63   13.5% 
                             Source: CoinGecko as of Sept. 8 
Biggest Decliners  Price   %7-day return 
Chain              $0.068  -17.5% 
NEXO               $0.89   -17.1% 
Chiliz             $0.19   -14.5% 
LEO Token          $5.13   -11% 
Amp                $0.006  -10.5% 
                           Source: CoinGecko as of Sept. 8 

Ethereum Classic's rise

As Ethereum's highly-anticipated Merge upgrade begins, Ethereum Classic, a separate blockchain representing an original, unchanged history of the Ethereum network, saw its token price surge. Ethereum Classic gained over 12% over the past seven days, outperforming ether, which added about 4%.

Explained:What is the Ethereum Merge? Here are 5 things you should know

What's the difference between Ethereum and Ethereum Classic? In 2016, after more than 3.6 million, or about $60 million ether, was extracted from the DAO, a decentralized autonomous organization based on Ethereum, the Ethereum foundation controversially created a new version of the blockchain without history of the hack. The new chain operated as Ethereum, while the old, unaltered network was renamed Ethereum Classic.

Now, Ethereum miners are looking at other coins to mine, such as Ethereum Classic, as they will lose their source of revenue after Ethereum's Merge transitions the blockchain from proof-of-work to proof-of-stake. Upon completion of the Merge, Ethereum will be relying on stakers, or ether holders who lock up their coins, to secure the blockchain, instead of miners. Ethereum Classic, by contrast, will remain as a proof-of-work blockchain.

The increase in the price and interest for Ethereum Classic from miners and users "is not necessarily temporary," said Jason Lau, chief operating officer at OKCoin.

Ethereum Classic's price might "end up at a higher level than where we were, because now you really have two different types of products," Lau told Distributed Ledger in an interview.

Some miners also proposed to split Ethereum again after the merge, with a chain that retains the proof-of-work mechanism. Compared with Ethereum Classic, the crypto community's interest for such a new chain could be temporary, according to Lau. "I think they'll have much less sort of community support. It's sort of a little bit of a final push back by Ethereum miners to capture some economic value," Lau said.

Hear from Mike Novogratz at the Best New Ideas in Money Festival on Sept. 21 and Sept. 22 in New York. The Galaxy Digital CEO has ideas about navigating the crypto winter.

Merge, a"non-event" for ether price?

Ethereum merge's impact on ether price could be compared to that of a company's stock split on its shares price, according to Rance Masheck, president at iVest Plus.

"I think it's gonna cause a bit of volatility around ether for the short term, but in the long term, I think it's going to be kind of a non-event," Masheck said. "It's like we just saw Tesla do their five for one stock split, and its shares haven't exactly been climbing since the split," Masheck said.

Lau echoed the point, highlighting that the Merge would not immediately solve Ethereum's widely-complained problems such as high transaction fees.

"I think this is a good step for the network and the community on return. But in terms of pricing, I think there'll be some pressure afterwards," Lau said.

Are crypto securities?

Gary Gensler, chairman of the U.S. Securities and Exchange Commission, said Thursday that the "vast majority" of the roughly 10,000 existing crypto tokens are securities, MarketWatch's Chris Matthews reported.

"The investing public is buying or selling crypto security tokens because they're expecting profits derived from the efforts of others in a common enterprise," Gensler said.

Gensler also responded to those who argued existing securities law is incompatible with cryptocurrencies and are demanding a new set of rules tailored to the industry.

Through statements and dozens of enforcement actions, the SEC has made clear how existing law applies to the industry, and that no such rules are forthcoming, according to Gensler. "Not liking the message isn't the same thing as not receiving it," Gensler said.

Crypto companies, funds

Shares of Coinbase Global Inc. (COIN) gained 4.2% to $71.14 on Thursday, and they were down 8.5% over the past five trading sessions. Michael Saylor's MicroStrategyInc.(MSTR) rallied 7.8% Thursday to $229.07, while the shares went up 3.7% over the past five days.

Mining company Riot Blockchain Inc. (RIOT) shares jumped 12.2% to $7.36 Thursday, contributing to a 13% gain over the past five days. Shares of Marathon Digital Holdings Inc.(MARA) surged 11% to $13.00, up 13% over the past five days. Another miner, Ebang International Holdings Inc. (EBON) saw shares up 0.4% to $0.48 on Thursday, for a 3.3% increase over the past five days.

Overstock.com Inc.(OSTK)'s shares advanced 3.2% to $27.36. The shares traded 6% higher over the five-session period.

Shares of Block Inc. (SQ), formerly known as Square, added 3.2% to $29.96 and were up 1.7% for the week. Tesla Inc. (TSLA) shares picked up 1.7% to $288.63, up 4.1% over the past five days.

PayPal Holdings Inc.(PYPL) edged up 0.9% to $95.76, up 3.4% over the five-session stretch. Nvidia Corp.(NVDA) shares increased 1.3% to $138.87, looking at a 0.4% loss for the past week.

Advanced Micro Devices Inc.(AMD) shares advanced 3.4% to $82.34 on Thursday, flat from five trading days ago.

Among crypto funds, ProShares Bitcoin Strategy ETF(BITO) added 1.4% to $11.82 Thursday, while its Short Bitcoin Strategy ETF(BITI) lost 1.6% to $39.95. Valkyrie Bitcoin Strategy ETF(BTF) went up 1.5% to $7.39, while VanEck Bitcoin Strategy ETF(XBTF) traded 1% higher to $18.63.

Grayscale Bitcoin Trust(GBTC) lost 0.7% to $12.09.

-Frances Yue

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09-08-22 1548ET

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