Cryptoverse: After Merge, ether heads for a $20 billion Shanghai splurge

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

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Sept. 20 (Reuters) – The merger has come, seen and conquered. Not that you would guess from cryptocurrency prices.

A massive upgrade to the ethereum blockchain finally went live on September 15, moving it to a less energy-intensive “proof of stake” (PoS) system with few more

While anticipation of the event sent ether up around 85% from its June slump, it has since fallen another 19%, joining bitcoin and other risk assets hit by investor concerns about inflation and central bank policy .

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Still, many market participants are bullish on the long-term prospects of Ethereum and its native cryptocurrency.

Markus Thielen, chief investment officer at asset manager IDEG Limited, said: “We have previously spoken to sovereign wealth funds and central banks to help build their digital asset allocations…but direct investment has been rejected due to energy concerns.”

“As Ethereum moves to PoS, this obviously solves the last problem.”

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

Ethereum’s next major upgrade is “Shanghai,” expected by market participants in about six months’ time, aimed at reducing its exorbitant transaction costs.

It will allow validators who deposit ether on the blockchain in exchange for earnings to withdraw their staked tokens, hold or sell them.

There are many risks: According to data provider Glassnode, more than $20 billion in ether deposits are currently locked.

According to CoinMarketCap, the bet on ether – seen as a bet on ethereum’s long-term success as it cannot be redeemed until Shanghai happened – was trading at almost 0.989 ether against ether, indicating confidence in future upgrades .

The coin hit a low of 0.92 in June.

Purge and Splurge

In addition to Shanghai, Ethereum has a series of other upgrades planned, which co-founder Vitalik Buterin has nicknamed “Surge,” “Edge,” “Purge,” and “Splurge.”

The main focus of future upgrades may be the ability of the blockchain to process more transactions.

Alex Thorn, head of company-wide research at blockchain-focused bank Galaxy Digital, said: “With the merger being delayed for several years, investors, traders and end users are wondering when ethereum will be It’s very concerning to scale meaningfully.”

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

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Ethereum Killer

The main goal of the merger is to reduce Ethereum’s energy use, as the cryptocurrency comes under fire for its huge carbon footprint. The developers claim that the blockchain’s energy consumption has been reduced by an estimated 99.95%, which could appeal to strong institutional investors who were previously constrained by environmental, social and governance (ESG) concerns.

The merger and future upgrades have also eroded 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 have yet to step in, however, as the dire macro environment has cooled the waters of risk appetite.

In the long run, though, the move to PoS is expected to reduce ether’s issuance rate — possibly as much as 90 percent — which should drive prices higher.

Additionally, staking ether to verify transactions has an annual yield of 4.1%, which may be tempting for investors.

However, while the proof-of-stake method allows for these lucrative gains, many crypto purists point out that it moves Ethereum away from a purely decentralized model, as the largest validators can exert more influence on the blockchain.

However, at the moment it may be suggested that the Ethereum world enjoys a moment of consolidation.

“There could be volatility in the next few days,” said analysts at Kaiko Research. “But now the community can win hard-earned victories.”

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

Our standard: Thomson Reuters fiduciary principles.

The views expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and impartiality in accordance with the principles of trust.

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