The anticipation of the Ethereum merge prompts a surge
For the past couple of weeks, the crypto market has been on an upward trajectory. Since local lows of 17,600 (BTCUSD) and 887 (ETHUSD) in mid-June, Bitcoin and Ethereum have surged to 23,200 and 1,670, respectively, amounting to a surge of 31.60% and 91.25% while other minor cryptocurrencies have followed suit. The surge has surely been driven by an enhanced risk-on sentiment originating from particular equities over the past month. However, one might also look at the crypto market itself to find the source of the positive sentiment. In early July, the second existing Ethereum test network known as Sepolia underwent the merge, transitioning from proof-of-work to proof-of-stake without any major issues. Hereby, only one more existing test network called Görli needs to undergo the merge before it is the real deal. Görli is scheduled to be merged around Thursday, August 11. With the Görli test network being the last obstacle before the real merge, Ethereum’s developers say that September 19 has been chosen as a ‘soft’ date for the merge. However, Ethereum Foundation and its developers have categorically been too optimistic with respect to timelines, so this date should be taken with a pinch of salt.
Asking us, at the time of writing, we assign a 75% chance in favor of the Ethereum merge occurring in September. In case the Görli merge occurs flawlessly, this increases to 95%. In plain English, Ethereum is truly close to its transition to proof-of-stake, with the latter likely taking place within the next two months. It seems the market agrees with this view. Based on Ethereum’s price activity in July compared to the one of Bitcoin, traders undoubtedly favor holding Ethereum upon the merge. In our view, the positive sentiment in Ethereum has positively influenced the price actions of the rest of the space, including Bitcoin. For instance, open interest in Ethereum options hit an all-time high last week. The merge is set to reduce the yearly issuance of Ether from 5.5mn Ether to 0.6mn Ether, increasing staking rewards, and lowering the network’s energy consumption by over 99.95%.