Cryptoverse: After Merger, Ether Heads for $20 Billion in Shanghai

Sept. 20 (Reuters) – The Merge came, saw and conquered. Not that you would guess from crypto prices.

Ethereum’s blockchain mega-upgrade finally went live on September 15th, moving it to a less energy-intensive proof-of-stake (PoS) system with almost a hiccup. Read more

Although ether has rallied about 85% from its June slump in anticipation of the event, it has since sunk 19%, hit along with bitcoin and other risk assets by investor jitters over inflation and central bank policy.

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However, many market players are optimistic about the long-term prospects of Ethereum and its native cryptocurrency.

“We previously talked to sovereign wealth funds and central banks to help build their digital asset allocations…but direct investment was rejected due to energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“With Ethereum moving to PoS, it clearly resolves this last pillar of concern.”

Some crypto investors are now turning their attention to the next event that could shake up prices.

The next major upgrade for Ethereum is “Shanghai,” expected by market participants in about six months, which is aimed at reducing high transaction costs.

This would allow validators who have deposited ether tokens into the blockchain in exchange for yield to withdraw their staked coins, hold or sell them.

There’s a lot at stake: Over $20 billion in Ether deposits are currently locked up, according to data provider Glassnode.

The staked Ether crypto coin – seen as a bet on Ethereum’s long-term success as it cannot be redeemed until Shanghai happens – is trading near parity with Ether at 0.989 Ether, according to CoinMarketCap data, indicating confidence in future upgrades .

The coin fell to 0.92 in June.


Souvenir tokens representing Bitcoin, Ethereum, Dogecoin and Ripple cryptocurrency networks are submerged in water in this May 17, 2022 illustration. REUTERS/Dado Ruvic/Illustration/File Photo

Beyond Shanghai, a number of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has called “up”, “edge”, “purge” and “waste”.

The main focus of future upgrades will likely be on the blockchain’s ability to handle more transactions.

“Because the merger was delayed by several years, investors, traders and end users have great anxiety about when Ethereum will expand meaningfully,” said Alex Thorne, head of firm-wide research at blockchain-focused bank Galaxy Digital.

Paul Brodie, global blockchain leader at EY, said: “The future of Ethereum must and will scale to hundreds of millions of transactions per day.”

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The main purpose of the merger was to reduce Ethereum’s energy consumption, as cryptocurrencies have been criticized for their huge carbon footprint. The blockchain’s energy consumption is reduced by approximately 99.95%, the developers claim, which could tempt powerful institutional investors previously constrained by environmental, social and governance (ESG) concerns.

The merger and future upgrades also undermine the investment appeal of so-called “Ethereum killer” blockchains like Solana and Polkadot, said Adam Struck, CEO of venture capital firm Struck Crypto.

Institutional investors, however, are yet to step in as a fearful macro environment cools the waters of risk appetite.

In the longer term, however, the move to PoS is expected to reduce the rate at which ether tokens are issued – potentially by as much as 90% – which should push prices higher.

Additionally, the annual yield of 4.1% for staking ether tokens to validate transactions may prove enticing to investors.

However, while the proof-of-stake method allows for these lucrative profits, many crypto purists point out that it moves Ethereum away from a purely decentralized model, as the largest validators can exert more influence on the blockchain.

For now, however, the Ethereum world can be advised to enjoy the moment of fusion.

“There could be volatility in the coming days,” analysts at Kaiko Research said. “But for now, the community can take a well-earned victory lap.”

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Reporting by Lisa Pauline Mattakal and Medha Singh in Bengaluru; Editing by Pravin Char

Our standards: The Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence and freedom from bias.

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