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The former CEO of BitMEX predicts that the price might surge after Ethereum merges if a specific scenario plays out. The Ethereum merge is expected to take place on September 15 this year.
Last updated Aug 22, 2022 at 11:06 PM
Posted Aug 11, 2022 at 1:00 PM
Ethereum Merge and price prediction:
The controversial entrepreneur Arthur Hayes suggests that Ethereum's future structure can trigger a price rally after the successful launch of the Ethereum merger. If this scenario plays out, the price might record another high.
Backwardation is a term used to describe a situation where spot cryptocurrency prices are higher than future cryptocurrency contracts. The backwardation is the reason why Ethereum prices are currently low. Hayes believes that the traders are trying to hedge their position on Ethereum before the anticipated merger. This has increased Ethereum's exposure and exerted an overselling pressure on the Ethereum price which ultimately affects the spot prices as well.
Ethereum Futures Term Structure: Glassnode
If the marginal pressure is on the sell side, the spot traders will close their spot positions to hedge against the impending collapse. This will trigger a price rally making new lows. However, one thing can reverse the situation altogether. If the speculators buy into Ethereum’s ‘triple halving’ narrative, these traders and market makers might have to reverse their positions. They will have to open the long spot and short futures to hedge against the new price movements. This can pump the price of Ethereum to the moon.
Ethereum works on a proof of stake mechanism. It requires a lot of computing power to process the transaction. As the traffic on the network increases more power is required to keep the network functional. This consumes a lot of energy and hence leaves carbon footprints. Also, since proof of work is slower and Ethereum can process only 12 to 15 transactions per second, the network gets clogged. Therefore, traders have to pay more fees to prioritize their transactions.
To address these problems, Ethereum approved the EIP 1159 and started shifting to the Proof of Stake mechanism. In the proof of stake mechanism, the top token holders are chosen to become the validators. These validators validate the transactions and earn a reward in return. Ethereum will completely shift to a proof of stake mechanism on September 15 this year. Proof of stake will save 99.9% of the energy compared to proof of work.
Ethereum Merge is intended to improve the scalability if successful. The proof of stake is faster compared to PoW. The current TPS of 12 to 15 can increase up to 100,000 TPS (Transactions Per Second). This is a huge achievement and will contribute to decreasing gas fees. Since the transaction processing speed will be a lot faster with PoS, there’s a very low chance of network congestion and traders won’t be paying to prioritize their transactions.
Ethereum is getting a lot of attention due to its EVM infrastructure helping the developers. There are hundreds of crypto, DeFi, NFT, and GameFi projects building on top of Ethereum; therefore, it needs to be scalable, cheap, and secure.
Theoretically, yes. Since Ethereum is a soft cap asset with unlimited supply, more and more Ethereum keeps being added to the circulating supply. A token with less supply in circulation gains more price.
Ethereum price CoinMarketCap
Therefore, to control the growing supply of Ethereum, Ethereum implemented a mechanism (the London Hard Fork) that burns a percentage of the Ethereum gas fee. Ethereum developers claim that after the merge is implemented, Ethereum will become deflationary in nature, meaning there will be more Ethereum burned every day than mined. This will make Ethereum rare and will help increase the price.
If the merge is successful, it will increase Ethereum adoption in the long run. Following the Ethereum shift from Proof of Work to Proof of Stake, more projects can shift to the PoS mechanism. There have been running campaigns against shifting Bitcoin to PoS to save the Earth and environment. Do you think Bitcoin should also change to Proof of Stake?