Written by Marcus Sotirio, Analyst at the publicly listed digital asset broker GlobalBlock (TSXV: BLOK).
Bitcoin began trading above $22,000 on Monday morning, ahead of the release of the important US Consumer Price Index on Tuesday, as well as the highly anticipated Ethereum consolidation, which is set to take place in the coming days.
The merger is, by far, the most impactful event that has occurred in the crypto industry to date and is considered by most crypto investors to be a very positive one. This will bring significant changes to Ethereum, as it will move from Proof of Work to Proof of Stake, reducing power usage in the network and releasing new tokens.
However, there are significant risks involved that can make the event chaotic in the short term. For example, many people in the ecosystem may not be ready to tackle the new chain, because they haven’t updated their software. Also, some APIs can hack in ways that not many people can predict. Moreover, there may be another delay that will frustrate investors who have been waiting years for this turnaround to happen.
Consolidation is a complex technical event, not limited to just one large company, but surrounding an entire decentralized network, so there are reasons why it may not run smoothly.
However, the long-term implications, in my opinion, will be very beneficial for Ethereum in the broader crypto space.
This is because the merger will reduce the power consumption of Ethereum by about 99.95%. ESG’s narratives are one of the biggest hurdles facing institutional investors entering the crypto industry, and consolidation could alleviate this concern and improve the reputation of the entire asset class.
ETH investors will also get a return of around 5%. This means that the entire DeFi sector will have a benchmark return on a basis of return, so it may allow the DeFi space to thrive as investors now have a way to price risk. In addition, institutional investors love the cash flow, so the ability to earn a profitable return is another attractive feature that can make ETH more investable for them.
Reducing energy use and revenue after a merger occurs may be an important incentive for organizations to enter the crypto space en masse over the next five years, but the short-term risks with the shift could mean we have a tough week ahead.
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