Ether, the native token of the Ethereum blockchain, the largest smart contract blockchain in the entire cryptocurrency ecosystem, saw its price soar above $2,000 per token, for the first time since May 19. 2022. This is when we get closer to the monumental move from a Proof-of-Work (PoW) consensus mechanism to a Proof-of-Stake (PoS), a switch that is dubbed “The Merge”.
This event is currently the most discussed in the ecosystem and due to the excitement we have seen the price of Ether rally around 20% in the past seven trading days with the bulls supporting the market . Interestingly, the focus on Ether has trickled down to reinvigorate Bitcoin bulls as the cryptocurrency’s flagship asset traded above the elusive $25,000 range, a price not traded since June 13, 2022. .
Now that bulls are in the headlines, especially now that data from CoinShares reveals that for seven straight weeks institutional investors have been investing heavily in Ether-based digital asset funds, it raises the question of whether it’s Whether or not is a good time to buy Ether, with many traders including CNBC anchor Jim Cramer stating that the crypto winter bottom has already been set.
Ethereum is the largest decentralized finance (DeFi) platform, accounting for $39.22 billion or 58.50% of the total value locked (TVL), it is also the largest NFT blockchain platform because it represents 83.90% or $15.72 billion of NFT trading volume seen through the end of July 2022.
- Since the Ethereum blockchain is one of the largest blockchains due to its high demand and usage and also due to the high level of decentralization that comes with PoW, there is now a need to adapt the speed of the blockchain to the as transactions are made on the blockchain now exceeds more than one million per day, according to Etherscan.
- Since the Ethereum blockchain can only process 13 transactions per second (TPS), this has resulted in extremely slow transaction speeds and high gas fees when transacting on the blockchain. Consensus PoW limits Ethereum’s ability to scale efficiently, which means the Ethereum Blockchain simply cannot handle the demand.
- For this reason, other blockchains have capitalized on this shortcoming of the Ethereum blockchain and they have created their own Blockchains which are generally known as alternative L1s or “ETH killers”, whose TPS far exceeds that of Ethereum. . These Ethereum Killers have seen a rapid increase as many users have flocked to them, due to their speed and cheap transaction fees. This caused Ethereum’s market share by Total Value Locked (TVL) on DeFi Llama to drop from 100% to 55% within 2 years.
- As a result of this issue, Ethereum developers, led by Vitalik Buterin, came up with a solution that involves moving the Ethereum blockchain from a PoW to a PoS consensus mechanism, to increase scalability, speed and reduce costs. Transitional upgrading can be divided into three main categories, which are; Beacon Channel (ended), The merge (September 2022) and Sharding (2023+).
- The merger, which should take place between 16e and 19e of September 2022, can be defined as the official transition of Ethereum from PoW to PoS. It can be divided into 2 broad categories: deflation and rewards. In this upgrade, a major benefit will be that Ether, the native token of the Ethereum blockchain, will see its issuance drop from 15k/day to 1.5k/day, representing a 90% reduction in issuance.
- This decrease in emissions is very positive, because currently the issuance of Ether causes an annual inflation of +3.2%, which reduces the value of the token. After the merger, Ether’s supply will decrease by -0.9%, ensuring that the token will finally become a deflationary token, in which scarcity ensures that the token will be more valuable.
Should you buy Ether today?
- With Bitcoin leading the rally, we have seen the altcoin’s market capitalization surpass $700 billion. The move is impressive as it breaks a troublesome selling zone that had previously controlled the bulls since May. Noting a trend of accumulation in developing altcoins, on-chain analytics firm Glassnode observed investors’ desire to increase risk exposure in the current atmosphere.
- Glassnode co-founders Yann Allemann and Jan Happel wrote in the latest edition of their “Uncharted” newsletter that, “According to Swissblock’s Altcoin Cycle Signal, some of bitcoin’s strength has tempered as investors divested from altcoins in a low-risk environment. Since the Ethereum merger became clearer, Ethereum has outperformed bitcoin, pushing altcoins higher.
- Although many were pleased with the move above $2,000, traders nonetheless remained conservative after months of rallying. A popular account, Crypto Chase, explained, “$ETH at $2200 as long as we stay above $1737. Once the untapped highs begin to be exploited (and no reversal is given), the rest of the highs generally meet the same fate. I don’t have my eyes on an exact level or setup for a long opportunity just yet, but I’ll update if I see one.
To conclude, while the merger is an exciting event as a move like this has never been made before, investors are advised to maintain a neutral stance as the current rally could be a “Buy the testnet and sell the mainnet”, situation, the one we saw last year 2021, when Cardano’s ADA hit an all-time high, leading to the launch of its smart contract platform and it immediately started to decline.
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