By Marcus Sotirio, analyst at publicly listed digital asset broker GlobalBlock (TSXV:BLOK).
Bitcoin started trading above $22,000 on Monday morning, ahead of the crucial US CPI release on Tuesday, as well as the highly anticipated Ethereum consolidation in the coming days.
The merger is the most impactful event that has ever happened in the crypto industry and is seen as a very positive event by most crypto investors. It will bring significant changes to Ethereum as it moves from proof-of-work to proof-of-stake, reducing the network’s energy usage and new token issuance.
However, there are significant risks that could cause the event to go awry in the short term. For example, many people in the ecosystem may not be ready to run the new chain because they haven’t updated their software. Also, some APIs can break in ways that most people can’t predict. There may also be another delay that will frustrate investors who have been waiting years for this transition to happen.
Consolidation is a complex technical phenomenon involving a completely decentralized network, not just one large company.
However, the long-term implications, in my opinion, will be very significant for the broader crypto space of Ethereum.
Because the integration is said to reduce Ethereum’s power consumption by around 99.95%. ESG narratives are one of the biggest barriers for institutional investors entering the crypto industry, and so integration can alleviate this concern and improve the reputation of the entire asset class.
ETH investors earn around 5% yield. This means that the entire DFI sector will have a benchmark yield to base the yield on, so investors now have a way to hedge price risk, allowing the DFI space to flourish. Additionally, institutional investors love cash flow, so the ability to get a profitable yield is another attractive benefit that makes ETH more investable for them.
The reduction in power usage and production after the merger could be a big incentive for institutions to move into the crypto space en masse over the next 5 years, but short-term risks mean we’re in for a rocky week ahead of the transition.