After almost six years of waiting, the Ethereum merge is finally set to take place in September this year. After the update, Ethereum will transition to the proof-of-stake consensus mechanism, bringing several improvements to the second largest blockchain network.
Firstly, the blockchain will become 99.5 percent more energy efficient after shedding its power-hungry proof-of-work consensus mechanism. The merge is also believed to reduce processing times, lower transaction fees, and help the blockchain scale in the future.
Therefore, it is fair to say that the Ethereum Merge is perhaps the most significant upgrade in the history of cryptocurrencies. As such, it is expected to impact Ethereum prices and have some rub-off effect on Bitcoin and the rest of the altcoins. Tag along as we unpack and explain some of these potential post-merge price movements.
Previous merge-related rallies
Back in July, just the news of the expected merge date caused ETH to spike. Prices shot up nearly 40 percent, going from roughly $1,000 to $1,500 after Ethereum developers announced September 19 as the tentative date for the merge.
Then, on August 11, Goerli, the final testnet, successfully merged with Ethereum's proof-of-stake Beacon Chain. The next day, Vitalik Buterin, the co-founder of Ethereum, took to Twitter to announce that the merge could take place ahead of schedule, around September 15. Both these events caused ETH to rally once again. Prices went from roughly $1,600 on August 10 to over $2,000 on August 14.
How will prices react post the merge?
With mere news and testnets merges causing prices to jump, crypto proponents have heightened expectations from the actual merge. While the long-term impact is hard to predict, experts believe the hype around the upgrade will lift prices in the short term.
Data from Glassnode also supports this notion, suggesting that options traders look "extremely bullish" for September. "Call options dwarf put options for size, with traders betting on ETH prices upwards of $2.2k, with significant open interest even out to $5.0k," the report says.
A call option is a contract that gives a trader the option to buy an asset at a specified price within a specific period. A put option is the same, but for selling an asset. Therefore, the overwhelming demand for purchase calls indicates a "state of extreme bullish bias," for ETH's price, with most of these options contracts set to expire on September 30.
Prominent crypto experts are also in agreement with these figures. For instance, Arthur Hayes, the former CEO of BitMEX, shared his bullish perspective on Ethereum in a recent blog post. According to Hayes, if the merge is successful and the FED signals interest rate cuts, Ethereum could touch the $5,000 mark.
Similarly, Hayes has also put forth several scenarios depending on a successful/unsuccessful merge and whether FED will implement an interest rate reversal or not. After averaging the price predictions of all these scenarios, Hayes arrives at a post-merge price of $2,815 for ETH.
The effect of the merge on other tokens
It's not all good news surrounding the merge. For instance, miners are unhappy about the transition to PoS, leaving them out of a revenue stream and rendering their mining rigs useless. This has caused some miners to explore the possibility of forking the Ethereum network, where the current PoW version will continue to run while the transition to the Beacon chain takes place.
Grayscale, one of the largest digital currency asset managers, expressed concern over the potential impact of such a fork in the network, especially on tokens that run natively on Ethereum. According to the investment giant, more than 530 protocols operate a variety of ERC-20 tokens within the Ethereum network, including leading DeFi tokens and stablecoins.
A fork might cause panic among these token/stablecoin holders, and they might start liquidating their holdings. This would create a substantial amount of sell pressure and price volatility.
Speaking of hard forks and miners, an unexpected gainer has been Ethereum Classic (ETC), which has jumped more than 55 percent since the merge date was announced in July. Its price has skyrocketed from $23.05 on July 18 to $35.98 at the time of writing.
This price hike can be attributed to an influx of miners jumping over to the original Ethereum network, which still runs on a PoW consensus mechanism. ETC is expected to maintain its price appreciation, with several mining giants pledging their support to the hard-forked version of Ethereum. For instance, AntPool, the mining pool giant, invested $10 million in the Ethereum Classic ecosystem and plans to continue supporting the network, according to its CEO, Lv Lei.
Conclusion
The merge is a massive milestone for Ethereum. It should help improve the efficiency of the blockchain tremendously. However, it is yet to be seen whether the merge will be implemented successfully. Further, several external factors also hang in the balance and could hinder the price movements of ETH post the merge. Therefore, how prices move after the transition, only time can tell.
