Ethereum’s (ETH) long-awaited upgrade—commonly referred to as “the merge” and “Ethereum 2.0”—could be the most important event in cryptocurrency markets this year.
The final phase of the merge begins in only a few days, as a massive upgrade to the leading altcoin’s network is slated to begin in mid-September.
In preparation, there’s been a 10% increase in derivatives trading volume of ETH over the month of August. The No. 2 crypto even surpassed Bitcoin in derivates volume.
Some analysts suspect the overall supply of Ethereum could go down as a result of the merge, which would increase the cryptocurrency’s value for those already holding it. These factors have led to a great deal of volatility and excitement in the days leading up to the Ethereum 2.0 transition. The leading altcoin is up nearly 15% over the last five days to around INR 1,30,990.
Why Is Ethereum Going Up?
As the big upgrade approaches, the price of Ethereum has been slowly edging higher.
Some enthusiasm for ETH centers around the crypto’s future prospects, with investors looking at the token as a buy-and-hold opportunity for future profits.
Ethereum soared to around INR 1,33,528 in mid-August before receding downward with a brief sell-off between Aug. 25 and Aug. 29. ETH prices fell during that period on news of a few merge-related bugs, as well as the Federal Reserve’s reiteration at Jackson Hole of its plans to fight inflation with higher interest rates.
Ethereum’s late summer rally followed its bottom on June 18, when ETH dropped to its 52-week low of around INR 89,499.
Between April and June, ETH was down more than 70%, dipping below the all-important INR 79,872 barrier in June.
Bitcoin (BTC) was only down 52% over the same period, bottoming out at around INR 16,91,939 in June. Since then, BTC has recovered about 15% to around INR 15,97,442. ETH has gone up more than 82% since its own bottom, breaking back above the INR 127,795 barrier.
Ethereum Merge Price Prediction
The merge has been in the works for years, but nobody knows exactly how Ethereum 2.0 will pan out for users. Few changes of this scale have ever been attempted in the world of crypto before.
The merge aims to convert Ethereum from a proof-of-work protocol to proof of stake. The former uses crypto miners to add blocks to the blockchain, while the latter uses validators staking ETH to get a chance to extend the blockchain.
This conversion to proof of stake will be accomplished by merging Ethereum’s Mainnet with the system’s Beacon Chain. This is a proof-of-stake chain that’s been running on the Ethereum network since December 2020. Launching the Beacon Chain was the first step in the merge.
The next step will be Ethereum’s Bellatrix upgrade on Sept. 6. The remaining step in the process, referred to as the Paris upgrade, should begin to be implemented sometime around Sept. 15.
As long as nothing too disruptive happens during the upgrade process, many crypto insiders believe investors should expect to see positive returns as a result of the merge.
Updating an entire blockchain protocol amid heavy use remains a very tough job. An estimated 1.3 million transactions occur on the Ethereum network daily.
Ben McMillan, co-founder and chief investment officer of IDX Digital Assets, says that the options markets are very bullish on the merge. Although, he also says that he’s nervous there could be a “buy the rumor, sell the news” mentality going on, which could hurt Ethereum’s price in the short term following the merge.
If the merge goes smoothly, some investors could wind up liquidating their positions following implementation. After the merge, these investors might believe they’ve already capitalized on its value, and they could then sell their positions and cause short-term price decline.
Anthony Scaramucci, founder and managing partner at global asset management firm Skybridge Capital, told CNBC earlier this month that a lot of traders will “probably sell on news of the merger,” but cautioned against that, saying Ethereum was a great long-term investment.
Ethereum Price Trend
The merge should definitely produce short-term effects on the price of Ethereum. Traders may want to watch these developments closely. But the question for other investors will be where Ethereum will go in the long run.
Nobody can know exactly where the price of ETH will be by the end of the year. McMillan predicts Ethereum will hit a price point “north of around INR 159,744” before late 2022.
Obviously, this is a bullish price prediction, and a handful of factors could affect it.
In addition to the merge, many crypto insiders believe investors might want to look at macroeconomic factors like inflation and government regulations of cryptocurrencies to help determine their investment strategies for the rest of this year.
Cryptocurrencies haven’t proven to be the hedge against inflation that some early Bitcoin adopters claimed. Instead, many cryptocurrencies, and ETH, in particular, have begun moving in tandem with high-risk stocks like the tech-heavy BSE.
This means macroeconomic factors such as inflation could continue exerting pressure on ETH’s overall price. In an inflationary environment, many investors retreat to commodities like oil and gold and tend not to be as interested in riskier investment vehicles like tech stocks and cryptocurrencies.
Many eyes are also on the U.S. government, Indian government and other international regulators for upcoming legislation, as regulations can drastically affect cryptocurrency prices.
Ethereum Volatility
Ethereum, like all cryptocurrencies, has proven to be an extremely volatile investment, and rapid price fluctuations can be set off by the smallest bits of news.
Reaching a high of more than INR 3,50,224 in November 2021, ETH is now down more than 64% to approximately INR 1,35,200.
Although McMillan does foresee ETH breaking through the psychological barrier of INR 1,59,744 again before the end of this year, the cryptocurrency’s volatility can make those kinds of price predictions difficult to determine with any accuracy.
McMillan advises investors to consider cryptocurrencies like Ethereum, similar to Nasdaq stocks in the late 1990s. “Be cognizant of short-term risks,” he says, but keep an eye on where you believe the cryptocurrency will be in five to 10 years.
Of course, with any high-risk investment like cryptocurrency, investors should remain aware of risks and not invest more than they can afford to lose.
Ethereum and other cryptocurrencies are volatile, high-risk investments that can quickly shift directions. Investors must always do their due diligence and be prepared for the volatile nature of these investments.