Cryptoverse: Post-Merger, Ether Heads for a $20 Billion Splurge in Shanghai

Souvenir tokens representing cryptocurrency networks Bitcoin, Ethereum, Dogecoin and Ripple plunge into the water in this illustration, taken May 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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September 20 (Reuters) – The merger came, saw and conquered. Not that you would guess from crypto prices.

The mega upgrade of the Ethereum blockchain finally went live on September 15, moving it to a less energy-intensive “proof of stake” (PoS) system with barely a hitch. read more

While anticipation for the event had seen the ether rise about 85% from June’s doldrums, it has since plunged 19% along with bitcoin and other risky assets amid investor fears about inflation and central bank policies. .

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Nevertheless, many market players are optimistic about the long-term prospects of Ethereum and its native cryptocurrency.

“We’ve previously talked to sovereign wealth funds and central banks to build their digital asset allocations… but direct investment has been voted off amid energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“With Ethereum moving to PoS, it clearly resolves this last pillar of concern.”

Some crypto investors are now turning their attention to the next event that could shake prices.

The next major upgrade for Ethereum is the “Shanghai”, which is expected by market participants in about six months’ time, which aims to reduce high transaction costs.

It would allow validators, who have deposited ether tokens on the blockchain in exchange for a proceeds, to withdraw, hold or sell their staked coins.

There’s a lot at stake: According to data provider Glassnode, more than $20 billion in ethereal deposits are currently locked up.

The ether cryptocurrency deployed — seen as a bet on Ethereum’s long-term success as it can only be redeemed in Shanghai — is trading nearly equal to ether at 0.989 ether, according to CoinMarketCap data, pointing to confidence in future upgrades.

The currency had fallen to 0.92 in June.

PURGE AND PRONOUNCE

Outside of Shanghai, a slew of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has nicknamed “the surge”, “verge”, “purge” and “splurge”.

The primary focus of future upgrades is likely to be on the blockchain’s ability to process more transactions.

“Since the Merge has been delayed for several years, investors, traders and end-users have great fears about when Ethereum will scale in any meaningful way,” said Alex Thorn, head of firm-wide research at blockchain-focused bank Galaxy Digital.

Paul Brody, global blockchain leader at EY, said: “The future of Ethereum must and will scale to hundreds of millions of transactions per day.”

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ETHEREUM KILLERS

The primary goal of the Merge was to reduce Ethereum’s energy consumption as cryptocurrencies come under fire for their massive carbon footprint. Blockchain energy consumption was reduced by an estimated 99.95%, the developers claim, which could entice powerful institutional investors previously constrained by environmental, social and governance (ESG) concerns.

The Merge and future upgrades also dent the investment appeal of so-called “Ethereum killer” blockchains like Solana and Polkadot, said Adam Struck, CEO of venture capital firm Struck Crypto.

Institutional investors are not jumping in yet, however, as a terrifying macro environment is cooling the waters of risk appetite.

In the longer term, however, the move to PoS is expected to reduce the rate at which ether tokens are issued – possibly by up to 90% – which should drive prices up.

In addition, annual returns of 4.1% for deploying ether tokens to validate trades can be tempting for investors.

While the proof-of-stake method enables these lucrative returns, many crypto purists point out that it is moving Ethereum away from a purely decentralized model, as the biggest validators could exert more leverage over the blockchain.

For now, however, the Ethereum world can be advised to enjoy the Merge moment.

“There could be volatility in the coming days,” analysts at Kaiko Research say. “But for now, the community can take a well-deserved victory round.”

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bengaluru; Editing by Pravin Char

Our Standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias under the Trust Principles.

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