Ether tumbles 9% following the completion of Ethereum's highly anticipated 'Merge' to energy-saving proof-of-stake system

• Ether prices tumbled as much as 9% on Thursday after Ethereum completed its anticipated "Merge."
• The "Merge" transitioned ether from a proof-of-work system to proof-of-stake, which increased the overall efficiency of the blockchain.
• Mining rewards following the "Merge" have been reduced by 90% to just 1,600 ETH per day.

Ether prices tumbled as much as 9% on Thursday following the completion of its highly anticipated "Merge" to a proof-of-stake model.

"And we finalized!" Ethereum co-founder Vitalik Buterin said in a tweet just before 3 a.m. ET. "Happy merge all. This is a big moment for the Ethereum ecosystem. Everyone who helped make the merge happen should feel very proud today."

The update, which has been nearly seven years in the making, makes the Ethereum blockchain much more energy efficient and faster as it moves away from a proof-of-work model that was similar to bitcoin's mining system, in which computers solve complex equations that required a lot of computing power for rewards.

According to Ethereum, the daily supply of new ether will fall by 90% now that the merge has been completed. Prior to the merge, about 13,000 new ether were mined each day. Now, staking rewards will be just 1,600 ether per day, with the net gain essentially nil.

"At an average gas price of at least 16 gwei, at least 1,600 ether is burned every day, which effectively brings net ETH inflation to zero or less post-merge," an info page on Ethereum's web page said.

Limiting supply of the cryptocurrency has been seen as some as a way to introduce more scarcity to the Ethereum blockchain, which should help drive prices higher if demand remains steady. But demand for cryptocurrencies has fallen off a cliff since bitcoin crashed more than 70% from its record high.

A combination of a hawkish Federal Reserve, high inflation, and swift and aggressive interest rate hikes have led to risk assets — both stocks and crypto — falling considerably this year as investors opt for safer securities that are tied to cash flows with appealing valuations.

The recent price action in ether suggests that the highly anticipated merge was a "buy the rumor, sell the news event," Fundstrat said in a Thursday note.

Leading up to the merge, ether prices soared more than 60% from their mid-June low of about $1,000. But today's swift 9% decline following the completion of the update suggests investors have turned their eyes to the next potential catalyst that might help push prices higher.

According to Fundstrat, it could just be a matter of time before ether prices recover as the token benefits from better supply and demand dynamics following the merge.

"We estimate the daily ETH issuance would decrease by approximately 89%, leading to over $20 million less in daily selling pressure. The improved supply dynamics will potentially have a positive price effect price going forward," Fundstrat said.