After months of bad news and poor price action, we are finally getting a little relief.
The news is not just exciting from a tech-innovation standpoint, but it’s a beacon of light for investors as well – both of which, we’ll discuss in greater detail below. Nevertheless, since the announcement on July 14th, the crypto market has strongly rallied as investors cling on to the latest and greatest narrative since markets began tumbling last spring.
Here At Last?
Although The Merge has been teased for several years, it always managed to get delayed. However, this time seems to be different.
With the successful merges of the testnets Ropsten and Sepolia, the last testnet Goerli is scheduled to merge on August 11th, and the finale now scheduled for September 19th. It looks like The Merge is finally happening.
Impact of The Merge
This is excellent news for crypto investors, especially for those holding Ethereum.
Because the transition to proof-of-stake reduces the issuance of new ETH by 90%. For those fluent in Bitcoin, that’s equivalent to three Halvings. As a result, millions of dollars of daily sell pressure will be erased. Add in the EIP-1559 burn mechanism that has already permanently removed 2.5 million ETH from the supply since last August, and ETH has a legitimate chance to become deflationary. Meaning, for the first time, Bitcoin might have some real competition as a store of value.
Price catalysts aside, The Merge represents a resounding technological upgrade with nearly every relevant party immediately benefiting.
Concerned about the climate impact of crypto? The move to proof-of-stake cuts Ethereum’s energy emissions by 99%.
Worried about security and decentralization? The Merge lowers the requirements to run a node, decreasing centralization and improving security.
Looking to earn a sweet yield? APR for staking ETH is expected to increase by 50% post-Merge.
Tired of paying a small fortune in “gas” (fees users pay to make transactions on Ethereum)? The Merge isn’t going to fix this right away, however, The Merge does set the stage for the eventual implementation of sharding. Combine that with rollups like Optimism and Arbitrum, and Ethereum has a clear roadmap to fixing its scaling issues.
Holder of an alternative “Layer-1” like Solana (SOL), Cardano (ADA), and Avalanche (AVAX)? If so, it’s arguably a good time to take a look at your portfolio allocation. The advantage of such “ETH-Killers” was that they scaled better than Ethereum. But with rollups gaining steam and sharding on the way, this might not be true for too much longer. Because Ethereum already has the advantage in decentralization and security, it’ll be interesting to see what happens to such ETH-killers when/if the efficiency of Ethereum catches up.
ETH holder looking for price to go up? ETH prices have climbed ~30% on the news of a tentative launch date alone. Now just wait until The Merge officially goes live. Combine this type of momentum with the deflationary supply catalysts we briefly mentioned above, and it’s fair to say that ETH investors have a lot to look forward to.
Just remember, despite all the excitement and the seemingly too good to be true network benefits, we should also be cognizant of this “number go up” mentality that’s spreading like wildfire.
It’s clear that investors (rightfully so) are excited about The Merge, but it’s going to take a lot more than better supply dynamics to crawl our way out of today’s bear market. At the end of the day, we still need applications and protocols that can deliver real utility and value. This is what’s ultimately going to strengthen the network (and prices) in the long-run.