Trading the ETH merge…or not
The event that could transform a DeFi blue chip…or do nothing
The Ethereum merge is meant to happen on September 15th 2022. By now, everybody and his sister would have blogged about it. Even the venerable The Economist bent over backwards to write a piece on decentralised network. Whether you just dabbled into crypto, or hold large bags, this event may have an impact on the entire crypto ecosystem. This is why.
The merge in itself is a non-event. The Ethereum blockchain is transitioning from Proof of Work to Proof of Stake, something that the eco-friendly would rejoice over, as it decreases 90%+ of the chain energy use by shunning the complex hash power of node runners. This is good news for a chain that was consuming this equivalent of Iceland’s electricity in a year, but overall it signifies that the chain is becoming more radically efficient at handling DeFi activity.
The issue is that this event takes place in dire times for crypto, on the back of a cold and dry winter. This downbeat backdrop is further darkened by troubled times for the economy. Interests are rising, liquidity is withdrawn slowly but surely, and inflation wreaks havoc among households.
In the world of the coins, liquidity is scarce, centralised entities have gone belly up, resolves have been shaken. So, is the merge an occasion to re-embolden the to-the-moon spirit of crypto, or is it the last nail in the coffin?
Most certainly there is some volatility in ETH. First, there is the lingering uncertainty on the success of the merge and fears abound on whether all protocols will transition smoothly. Second, the merge is meant to reduce ETH supply and incentivize a long-term buy and hold approach. Stakers will remain locked for up to 12 months after the merge, meaning that ETH price will swing more even on smaller trades.
Entities position around the merge event. Binance increased its ETH staking yield to 6%, from the 4% base rate. Aave stopped loaning ETH. Compound has capped the amount of ETH that can be borrowed, and cranked up interests in case utilization rate exceeds 80%. ETH is also flowing out of centralized exchanges, as holders want to get the ETHPoW token spin-off and try to sell it for a immediate profit. In a nutshell, the scene is set for huge trading in ETH both ways, and a great deal of volatility as available supply is scant.
As always, crypto scams will be plenty, certainly on claims that ETHPoW tokens are worth something. Assume they are worth zero to be on the safe side. If in doubt, follow Compound’s chief words of wisdom “do nothing”.
About –
360 Advisory LLC is a Boston-based RIA managing investments, including crypto
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Sources –
👉 https://thedefiant.io/what-is-the-merge
👉 https://newsletter.banklesshq.com/p/is-the-merge-priced-in
👉 https://newsletter.banklesshq.com/p/ethereum-merge-launch-release-date-roadmap
👉 https://www.coindesk.com/tech/2022/09/07/ethereum-merge-what-you-need-to-know/
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