Ethereum’s ‘Merge’ Still A Dud For Investors

One month after the “merge” over at Ethereum’s blockchain — the shift from proof of work to proof of stake — investors in ETHETH
who hoped the shift would provide a financial lift have been left with shrinking returns on investment. Ethereum’s price has been flatlined since the September 15 merge day, tracking LitecoinLTC
almost exactly, and bitcoin, as well.

“Some of the news has been priced-in already, but let there be no mistake: this event will be a major catalyst driving prices higher in the long term,” says Nigel Green, CEO of deVere Group, a traditional asset management firm that has gotten into cryptocurrency over the last several years. Proof of stake will also lower transaction costs and energy costs for those using the Ethereum blockchain and transacting in ETH.

Green says that lower energy costs will eventually become “significantly more appealing to institutional investors, who bring with them enormous capital.” Recall that bitcoin’s energy-intensive “mining” to produce algorithmic bitcoins on a computer network made Elon Musk pass on his decision to hold bitcoin in Tesla’s cash accounts.

“Institutional investors who have been sitting on the sidelines are now likely to move in on ETH,” he says, adding that the main effect of the merge — cutting transactions costs and speeding up transactions — will keep Ethereum in the game as rival blockchains have been trying to steal its thunder.

Technically, the switch over to proof of stake does not change anything for users of the Ethereum blockchain. They have the same addresses, accounts, balances, and wallets, and the coding is the same.

Miners, on the other hand, will become obsolete under proof-of-stake model.

“There has been no change for how we operate with Ethereum,” says Stanislav Scharapow, chief technology officer and board member working for Portuguese designer Leandro Lopes and his fashion-to-earn project. “The Merge only affected Ethereum’s price, which makes transactions a bit cheaper in fiat. There are concerns about possible network overtake by big money, but from a user and developer’s point of view, nothing has really changed for us.”

The merge is only the first step in what investors believe will make Ethereum the AmazonAMZN
of blockchains; sharding is the next. Sharding means partitioning large databases into smaller, faster ones that make the entire Ethereum blockchain more scalable. This is often done in cloud computing networks.

For this reason, investors will eventually return to Ethereum. It remains the mother lode of most developers. The blockchain and its token is widely used by developers of blockchain-based protocols and applications. Ethereum founder Vitalik Buterin has said that the merge would focus on both scale, and security. The new Ethereum, if one can call it that, is said to deliver scale on par with the main alternative blockchains, namely Polygon and Solona, which can do over 100 thousand transactions per second.

There has been some concern in the Ethereum community, along with blockchains in general, that Big Tech censorship would eventually come to meet the cryptocurrency universe.

“It is critical for the long-term success of the entire blockchain industry, not just Ethereum, that the layer-1 blockchains remain credibly neutral,” says Sagaverse.io CEO Lars-Erik Ravn. Sagaverse is a Web3.0 collaborative creation platform designed in Oslo. “Ultimately, it’s going to be up to the validators to restrict their block proposals to those with only OFAC-compliant transactions” he says about the U.S. Treasury Department’s sanctions office. “I doubt the network will censor transactions as long as some proposers don’t run censorship software. Ethereum is not censoring. It will be up to the global Ethereum community, and all its stakeholders, to ensure that this remains true in the future, as the regulatory landscape evolves.”

Ethereum’s “merge” will have an impact on the entire crypto developer market.

To date, the alternative blockchains that have bee wooing some projects away from Ethereum are all underperforming. Only Polygon is close to ETH, both down around 65% so far this year.

Alts like AvalancheAVAX
(-86%), Solana (-83%), and PolkadotDOT
(-78%) are in worse shape. Avalanche and Solana have underperformed ETH year-to-date (as of October 19 noon) and since the September 15 merge. Polkadot and Polygon have done better since then.

Post-merge-feasible upgrades are likely to increase Ethereum’s transactions per second from 15 to 100,000 – “catapulting the cryptocurrency/blockchain into the orbit of world-scale financial transaction providers such as VisaV
and MastercardMA
,” says Jaime Baeza, a former Credit Suisse institutional trader and now CEO of ANB Investments, a crypto hedge fund.

ANB has two funds: Full Strategy Fund and the Delta Neutral Fund, both were up 38.56% and 10.21% year-to-date ending September 15, respectively.

Investors like Baeza expected high volatility and price swings post-merge, but ETH has been relatively quiet. Volume this month has been below that of the last two weeks of September.

“Opportunities are arising,” Baeza says.

Ethereum’s native token, basically known as ETH, has declined by over 60% year-over-year, trading below $1,300 last week. The plunge has not discouraged crypto investors like Baeza.

According to CryptoPresales.com, the number of unique addresses holding more than one ETH has jumped by 20% year-over-year, reaching 1.58 million last week.

The crypto analytics platform, Glassnode, showed that ETHs latest price dip was a buy for bigger investors rather than retail investors.

In October 2021, the number of unique cryptocurrency accounts holding one or more ETH hit 1.32 million. Ethereum’s price was around $3,500 at that time. By March 2022, the number of Ethereum wallets with balances of at least 1 ETH hit 1.41 million, while the price of the No. 2 crypto after bitcoin fell to around $2,600.

Glassnode numbers show the number of investors holding at least 1 ETH has increased by 170,000 since March, even as the ETH price continued to collapse.