ETH price made a clear trend change and aims for the $3,800 level after traders’ anticipation of the upcoming Merge lures the bulls back to the market.
The week-long uptrend in the cryptocurrency market has begun to awaken bullish crypto investors and the successful March 15 launch of the Ethereum “merge” on the Kiln testnet has the community excited about the upcoming switch to proof-of-stake (POS).
Data from Cointelegraph Markets Pro and TradingView shows that since the successful launch on Kiln, the price of Ether has climbed 25% from $2,500 to a daily high at $3,193 on March 25 as traders look to lock in their positions ahead of the merge.
Here’s a look at what analysts in the market are saying could happen with the price of Ether as the merge approaches and how the switch to POS could affect its price long term.
A clear breakout from the downtrend
The turnaround in Ether price over the past couple of weeks was succinctly addressed by crypto analyst Justin Bennett, who posted the following chart highlighting the trend reversal that has occurred.
The merge will be a bullish development
A deeper analysis of the effects the upcoming merge for Ethereum will have on its price was discussed by analysts from the independent global macro and crypto research house MacroHive, who noted that the merge “will have bullish implications for Ether.”
According to MacroHive, “the prospect of being able to make a passive return on staked Ether will attract more investors into the space,” while the transition to proof-of-stake “will reduce Ethereum’s energy consumption by 99.95%.”
This, in turn, will help to attract more institutional money into the Ethereum ecosystem as the Environmental, Social, and Governance (ESG) concerns “around the energy consumption of mining/proof-of-work are mitigated.”
The merge will also have a notable impact on the circulating supply of Ether as the net issuance will undergo a significant drop-off once completed as block rewards are replaced with Ether staking yields.
Ethereum currently relies on what’s known as proof-of-work in which miners must complete complex puzzles to validate transactions and create new coins. This process requires a huge amount of computer power and is often criticized due to its environmental impact.
With the planned upgrade, Ethereum is moving to which would let users validate transactions according to how many coins In return for staking more coins, users have a higher likelihood of being chosen to validate transactions on the network and earn a reward.
Currently, Ethereum has both a proof-of-work and proof-of-stake chain running in parallel. While both chains have validators, only the proof-of-work chain currently processes users’ transactions. Once the merge is complete, Ethereum’s blockchain will shift fully to the proof-of-stake chain, called the Beacon Chain, making mining obsolete.
As a result, it’s predicted that Ethereum’s energy consumption will be cut by 99%. Due to the reduced environmental impact, it’s thought that more institutional investors will want to buy Ether, use its blockchain, invest in its network, and create greater adoption.
Ethereum developers successfully tested the shift last week as part of final preparations for the merge, which added to bullish sentiment surrounding the upgrade’s potential.
Though the merge was expected to happen months ago and has been delayed, Ethereum developer Tim Beiko told Bloomberg that “it would take a catastrophic event for it not to happen this year.”
Ether issued is estimated to drop by ‘90%,’ which may boost its price
The supply of Ether is also expected to decline post-“merge,” because fewer coins are expected to be issued.
“Following the merge, the amount of ETH issued is projected to drop by 90%, which would lead to similar levels of fees to reduce ether’s supply by as much as 5% a year,” blockchain analytics firm IntoTheBlock wrote in its newsletter.
If demand increases as the supply decline, the price of Ether may rise. But it’s impossible to predict the future price of any asset.
Since the implementation of another important upgrade in August, Ethereum has already burned, or destroyed, $5.9 billion worth of Ether, according to the data dashboard Watch the Burn. Though that August upgrade was unrelated to the merge, it does show that the issuance of new Ether has already slowed. Post-merge, some think Ether may become a deflationary asset, or one with declining supply that can be used as a store of value. Bitcoin is already considered a safe haven.
Staking yields estimated to cause high returns
Under proof-of-stake, validators will “stake,” or contribute their Ether to crypto wallets. Fees that were typically paid to miners for their efforts in the proof-of-work model will turn into somewhat of passive income for validators under the new proof-of-stake since mining will become obsolete.
Through the merge with the proof-of-stake chain, fees previously earned by miners will pass on to being earned by those staking. This is expected to result in staking rewards between 7% and 12%,” IntoTheBlock reported.
But critics are skeptical of the ‘merge’
Though most of the Ethereum community is excited about the “merge,” some have expressed concern.
Alyse Killeen, the founder of Bitcoin-focused venture firm Stillmark, said on Twitter: “Ethereum is in so. much. trouble…ensuring security is becoming harder [and] harder.” She argues that proof-of-stake is less secure and that it makes Ethereum more vulnerable to attacks.
But this critique “just seems very anti-Ethereum without much extra substance,” Beiko told Fortune. He said that the move to proof-of-stake would actually improve security against potential hacking.
“Under proof-of-stake, if an attack happens, we can simply upgrade the network to remove the attackers’ coins,” he said.