Cryptoverse: After Merger, Ether Heads For $20 Billion Shanghai Leap

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

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

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

Although anticipation of the event had seen ether rise around 85% from its June hibernation, it has since fallen 19%, hit along with bitcoin and other risky assets by investor anxiety over inflation and central bank policy.

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

“In the past we’ve talked to sovereign wealth funds and central banks to help build their digital asset allocations… but direct investment has been downvoted because of energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“When Ethereum moves to PoS, this clearly solves this last pillar.”

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

The next significant upgrade for Ethereum is “Shanghai”, expected by market participants in about six months, which is aimed at reducing the high transaction costs.

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

There’s a lot at stake: over $20 billion in ether deposits are currently locked up, according to data provider Glassnode.

The staked ether cryptocurrency — seen as a bet on Ethereum’s long-term success since it cannot be redeemed until Shanghai happens — is trading at near parity with ether at 0.989 ether, according to CoinMarketCap data, indicating confidence in future upgrades.

The coin had fallen as low as 0.92 in June.

PURGE AND PURGE

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

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

“Because the merger was delayed for several years, investors, traders and end users have a lot of uneasiness about when Ethereum will scale meaningfully,” said Alex Thorn, head of firm research at blockchain-focused bank Galaxy Digital.

Paul Brody, global head of blockchain at EY, said: “Ethereum’s future needs will, and will, scale to hundreds of millions of transactions a day.”

ETHEREUM KILLERS

The merger’s primary goal was to reduce Ethereum’s energy use as cryptocurrencies come under fire for their massive carbon footprints. The blockchain’s energy consumption was cut by an estimated 99.95%, the developers claim, which could tempt powerful institutional investors, previously constrained by environmental, social and governance (ESG) concerns.

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

However, institutional investors are not jumping in just yet, as a fearsome macro environment cools 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 – potentially by up to 90% – which should drive up prices.

Additionally, annual returns of 4.1% for staking ether tokens to validate transactions may be tempting for investors.

However, while the proof-of-stake method allows for these lucrative returns, many cryptopurists point out that it moves Ethereum away from a purely decentralized model as the largest validators can exert greater influence over the blockchain.

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

“There could be volatility in the days ahead,” said analysts at Kaiko Research. “But for now, society can take a well-deserved victory lap.”

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

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