Some experts expect the price of Ethereum (ETH) to rise following its transition to proof-of-stake (PoS) with the impending Merge, though others have warned of risks.
Within the next two weeks, Ethereum’s mainnet will integrate with the system’s Beacon Chain, a PoS chain whose launch in Dec 2020 served as the first step toward the Merge.
Following Ethereum’s Bellatrix upgrade expected on Sept 6, the integration should finally take place with the Paris upgrade, scheduled for Sept 13, according to CoinGecko COO Bobby Ong.
ETH going up?
In addition to being more environmentally sustainable than the energy-costly proof-of-work (PoW) consensus mechanism, crypto investors expect to see other positive returns from the benefits of transitioning to PoS.
For instance, Justin Bons, founder of Europe’s oldest cryptocurrency fund Cyber Capital, highlighted that PoS is far more efficient in terms of the cost of security. This point had also recently been acknowledged by Ethereum co-founder Vitalik Buterin in a recent interview.
Bons also pointed out that half of all fees are also being burnt. “This means that post-merge if fee revenues just stay the same,” he said, “ETH actually becomes deflationary with negative inflation!”
This would probably decrease the overall supply of Ethereum and increase the value of the cryptocurrency for those already holding it.
These factors have contributed to a great deal of volatility and excitement in anticipation of the Merge, with Ethereum up nearly 8% over the last seven days to around $1,560, according to CoinGecko.
Derivatives traders have also been placing directionally obvious bets for Ethereum, with Ethereum options open interest at $6.6 billion, higher than for Bitcoin at $4.8 billion for the first time.
Yet, in spite of the perceived upwards momentum of Ethereum, Bons still believes the cryptocurrency to be undervalued. “The question is often asked whether the merge is already priced in,” he said.
“I would argue that it is not entirely priced in.” He blames this on “misinformation” campaigns that have been carried out by “opponents.”
While he characterizes these as “false narratives,” others also have similarly skeptical perspectives.
ETH going down?
Although Ethereum has risen nearly 10% in the past week, that jump followed a nearly 30% plummet from just over $2,000 in mid-Aug.
Ethereum struggled during that period due to news of merge-related bugs, as well as Federal Reserve Chairman Jerome Powell’s address at Jackson Hole, reiterating the central bank’s hawkish stance on combating inflation.
Meanwhile, some are of the more cynical perspective that all the hype surrounding Ethereum is in anticipation of a greater rug pull. “Isn’t it very clear that market pumps till the Merge, and then it nukes afterward?” said crypto Twitter’s Il Capo Of Crypto.
However, updating an entire blockchain protocol, amid heavy continuing use, with an estimated 1.3 million transactions daily, across more than 3,400 active distributed applications, remains a very risky prospect.
Consequently, industry participants have moved to insure themselves against these risks.
Decentralized finance protocol Aave suspended Ethereum lending on its platform in anticipation of the Merge.
Around the time of the Merge, Coinbase, the largest U.S. crypto exchange, said it would “briefly” pause withdrawals and deposits of all Ethereum-based tokens.
Although Ethereum appreciation seems likely in light of the Merge’s expected benefits, the suspension of withdrawals has usually had a singular effect on the price of a cryptocurrency.
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