The 'Merge Trade' Has Begun, Experts Say, as Ether Surges and stETH Discount Narrows
Comment of the Day

July 20 2022

Commentary by Eoin Treacy

The 'Merge Trade' Has Begun, Experts Say, as Ether Surges and stETH Discount Narrows

This article from the CoinDesk may be of interest to subscribers. Here is a section:

Several observers consider Ethereum's impending transition equivalent to three Bitcoin halvings – a programmed code that halves the per block bitcoin (BTC) currency supply every four years – that will lead to a 90% reduction in ether's annual issuance. Simply put, the transition is likely to bring a store of value or deflationary appeal to ether. The upgrade has been long pending.

Like other market participants, ether investors tend to factor in bullish developments in advance. For instance, ether rallied over 60% to $2,800 in the three weeks leading up to the London hard fork implemented on Aug. 5, 2021. The hard fork activated a mechanism to burn the portion of fees paid to miners.

The Ethereum 2.0 upgrade has been long overdue and has seen several delays. However, the recent successful merges of the Ropsten and Sepolia testnets and the Goerli testnet's planned transition to proof-of-stake on for Aug. 11 has raised hopes for the mainnet merge in September.

The foundation's strongest hint of the tentative date of the Merge on record came as the crypto market looked for reasons to bounce, having priced in much of the bad news over the past two months.

Ether tanked 60% to less than $1,000 from $2,700 in the past two months as fears of faster liquidity withdrawal by the Federal Reserve, Terra's collapse and eventual bankruptcies of crypto hedge fund Three Arrows Capital, several crypto lenders saw investors dump crypto holdings.

Eoin Treacy's view

Predictable dates tend to magnify trader interest. That’s especially true in markets where there are no hard fundamentals, like crypto. The one thing that amplifies interest in the crypto sector better than anything else is supply inelasticity.

The migration from proof-of-work to proof-of-stake is a major event for Ethereum. It takes power away from miners and gives it to holders of the token. In return for a dividend, paid in tokens, stakers will provide their inventory to the network as part of the validation system for new transactions.

Since a participant needs at least 32 ethereum ($51,000) to be a staker, that now implies the market is likely to become more focused on institutional investors since they will be the only ones with sufficient capital to dominate the market.

The price is rebounding from the psychological $1000 area. $2000 is the first area of potential resistance since it represents the lower side of the overhead top formation. A sustained move above that level would confirm more than short-term demand dominance.
Bitcoin is also rebounding. It has held a sequence of ranges, one below the last, since the November peak. A break in that consistency will be required to signal a return to demand dominance beyond short-term steadying.

Coinbase, Riot Blockchain and Block are all firming within their base formations.

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