The Ethereum Merge is complete - Crypto Investor's Weekly 11.09-18.09

With the Merge completed markets are free to focus on other factors.

Ethereum has transitioned to a Proof-of-Stake blockchain in the highly anticipated Merge – likely the biggest event in blockchain history. While the long-term ramifications of the first ever blockchain switch from Proof-of-Work to Proof-of-Stake are yet to be seen, the short term effects seem to be minimal. Considering that markets have been anticipating this event for months it’s not surprising that we’ve had little price reaction to the Merge.

However the best could be yet to come. One of the effects of the Merge is a reduction in ETH issuance. That’s expected to make the network deflationary, which could drive up prices. And the simple fact that there’s less supply should also help support, or even boost prices. And with the Merge dropping the energy consumption of the Ethereum network by 99.95% it’s thought by some that more institutional investors who may have been hampered by environmental, social and corporate governance (ESG) requirements, will now be able to invest in ETH.

So, keep your long time horizon and continue to invest regularly and within your own tolerance for risk. With crypto prices currently lowered you get more for your invested capital and the future continues to look bright.

Image via Chainalysis

The chart above shows the inflows of ETH to exchanges. Inflows to exchanges fluctuate with changes in market sentiment. For instance, an increase in inflows suggests increased selling pressure in the market. Inflows spiked higher ahead of the Merge event and remain very elevated, however now that the Merge has passed it’s likely that exchange inflows will return to more normal levels. It’s true that some selling pressure has continued post-Merge, but given the current action in traditional markets (stocks, bonds, etc.) it is likely that this is due to the continued flight of investors from risk assets.

Markets Weekly Range (through Sept. 15, 2022)

Bitcoin - Min (USD): $19’077 / Max (USD): $22’674

Ethereum - Min (USD): $1’564 / Max (USD): $1’785

VALOR - Min (USD): $0.2842 / Max (USD): $0.3261

PAX Gold - Min (USD): $1’678 / Max (USD): $1’730

Summary of Markets Weekly Range: Crypto markets have avoided the rally hoped for post-Merge by investors. On the other hand, they have also remained resilient in the face of macroeconomic data that’s increased the expectations for higher interest rates in the coming weeks and months. So, while the range for crypto assets has dropped somewhat over the past week, it's been a modest drop. In comparison with prior crypto winters this one is proving to be fairly mild. The big question is when will it end, but the answer to that might be buried in macroeconomic details rather than the fundamentals of the crypto markets.

Image via Twitter

One of the offshoots of the Merge, besides changing Ethereum to a Proof-of-Stake blockchain, is to make its currency ETH deflationary. Many like to call this type of deflationary currency “sound money” because it doesn’t decline in value over time (at least in theory). Instead, the declining supply helps to maintain the currency’s value. It means you can hold ETH and it should be worth (relatively speaking) at least as much 10 years, or even 100 years, in the future.

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Have a nice weekend and see you next time!