Bearish Bets that Ethereum Merge Might Go Wrong Spur Investment Fund Outflows

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With less than 24 hours left for Ethereum’s big merge, the market doesn’t seem very optimistic as is evident from the huge outflows recorded in the past few weeks. This is especially surprising because Ethereum’s merge project was announced and confirmed months ago (by the co-founder), and it was supposed to stop the tide of downfalls and help the coin reach new heights.

As Ethereum approaches its merge, investors fear that it would make matters worse for the coin and result in it tumbling down even further instead of rescuing it. The fear has grown stronger because of the bearish run of the coin, as has been the case with the whole crypto market after the crash. ETH even went below the $1000 dollar mark this year adding to people’s concern about the future of the coin.

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ETH Outflow in the Past Few Weeks

In the past few weeks, there has prevailed a negative sentiment in the crypto market (as is the case during bearish times), especially against coins with big market caps like Bitcoin, Ethereum, etc. This has resulted in investors locking up tens of millions of dollars in short options.

In the week ending 9th September, as per a coinshare report, there was an outflow of about $63 million in the crypto industry. A majority of this outflow constituted of ETH coins which were about $62 million. As of now, Ethereum has witnessed a total of $360 million worth of outflows in the current year.

From the above information, it can be easily inferred that Ethereum is one of the worst-hit cryptocurrencies in the market and faces a serious issue of increasing outflows from the ecosystem, which might trigger other investors and eventually create a snowball effect making the coin tumble down even further. This bearish trend may very much absorb all the market excitement regarding The Merge.

But should we measure the success of Ethereum’s upcoming project from the kind of effect it has among its investors and in the overall market in the short run? To know that, we first need to know more about The Merge, what it means, and why the team is bringing it forward.

The Ethereum Merge and its Significance

Ethereum’s merge was announced in the first quarter of 2022, and ever since, the project has been in the headlines. The merge signifies Ethereum’s move from a proof-of-work based blockchain the mainnet) to a proof-of-stake-based blockchain network (the beacon network).

Less Energy Consumption

The merge step was taken due to the immense energy costs associated with Ethereum mining in the previous network. In a proof-of-work network, heavy calculations are required to be done, which requires heavy machines having huge energy consumption.

With a proof-of-stake consensus mechanism, there will be a 99% drop in the energy consumption by the network. This will make Ethereum more environment-friendly than it was before, which holds a lot of significance in a where everybody is getting more and more conscious about the environment.

Staking Options

In the new network, ETH coins will be mined by the validators who are supposed to stake ETH coins (32 at least) to validate a node.

Investors who don’t have enough ETH or the time to be a validator have the option of their coins in Staking Pools which will be used by the validators. Once the coins are mined, the rewards will be distributed among the pool contributors proportionately. This will make Ethereum an even more rewarding coin to invest in.

Deflationary Effect

The coins being mined every day in the new network will be a tenth of what is being mined in the current network (about 13,000). This is done to create a deflationary effect on the coin making it less vulnerable to market instabilities as has happened in the past.

Decentralized Operation

The proof-of-stake type consensus mechanism will eliminate the network’s dependence on heavy machines that can do laborious calculations. Now possession of these machines won’t be needed to validate nodes, and any investor can be a validator.

This will eliminate the concentration of authority over the network’s operations in the hands of a few and will make it more decentralized. Decentralization and equal opportunity for getting network rewards will also be made possible as all validators would have equal chances of winning the reward despite the amount they have staked. This means rewards would not go into hands of few who have staked the most amount.

Given all the perks of this brand new Ethereum network, it still won’t be able to have a positive impact on its price because of the prevailing bearish trends. But would this bet of introducing a new network bear fruits for the investors in the long run? We will find that out in a while.

Will the Merge be Good News for Ethereum and Investors

The Ethereum Merge may be happening at the wrong time, but it would definitely help the coin grow to new heights in the long run. The Ethereum foundation had faced a lot of heat from investors and from the world in general regarding its excessive consumption. But now that the energy problem is addressed, Ethereum has become a suitable alternative for a fiat currency.

Shift to a proof-of-stake consensus mechanism will benefit the network in various ways (as discussed earlier). Less energy consumption won’t just make the ETH an energy-friendly token but will also save a lot of costs that a miner otherwise will have to incur to mine the coins.

The Merge might help Ethereum cross its all-time high value. But the growth of the network is also dependent on the active audience who are conscious of how this new beacon network is more environment-friendly, decentralized, etc, than the previous one.

Conclusion

Ethereum’s merge is scheduled to take place on the 15th of September. Despite positive speculations, the coin is not on the rise. In the past few weeks, it has witnessed major outflows (it being the biggest loser on the list).

Although the merger may not be good news for Ethereum and its investors in the short run, the Merge has immense potential and may take ETH to new heights in the long run. The merge offers an upgrade over the previous network and looks extremely enticing, at least on paper.