Written by Medha Singh and Lisa Pauline Matakal
(Reuters) – The merger came, watched and won. This is not what you would guess from cryptocurrency prices.
Finally, the massive blockchain upgrade was launched on September 15, moving it to a less power-intensive Proof of Stake (PoS) system with no hitches.
Although the event forecast saw an almost 85% rise from the June recession, it has since fallen by 19%, hit along with bitcoin and other risky assets by investors wary of inflation and central bank policy.
However, many market players are bullish on the long-term prospects of Ethereum and its native cryptocurrency.
“We have previously spoken to sovereign wealth funds and central banks to help build allocations for their digital assets…but direct investment has been turned down due to energy concerns,” said Markus Thelin, Chief Investment Officer at IDEG Limited, the asset manager.
“With Ethereum moving to PoS, this clearly resolves this last column of concerns.”
Some cryptocurrency investors are now turning their attention to the next price-altering event.
The next significant upgrade for Ethereum is “Shanghai,” which market participants have been expecting in about six months, and which aims to reduce high transaction costs.
It will allow validators, who deposit ether tokens on the blockchain for a return, to withdraw their stacked coins, to either hold or sell.
There’s a lot at stake: More than $20 billion in ether deposits are currently locked in, according to data provider Glassnode.
Cryptocurrency ether — seen as a bet on Ethereum’s long-term success as it cannot be redeemed until Shanghai happens — is trading at par with ether at 0.989 ether, according to CoinMarketCap data, indicating confidence in future upgrades.
The currency fell to 0.92 in June.
Outside of Shanghai, a slew of other Ethereum upgrades are planned, which co-founder Vitalik Buterin calls “boom,” “edge,” “purge,” and “splurge.”
The primary focus for future upgrades will likely be on the blockchain’s ability to process more transactions.
“With the consolidation delayed by several years, investors, merchants and end users have a great deal of concern about when Ethereum will be meaningfully expanded,” said Alex Thorne, head of company-wide research at blockchain-focused bank Galaxy Digital.
“The future of Ethereum needs and will expand to hundreds of millions of transactions per day,” said Paul Brody, global blockchain pioneer at EY.
Merge’s primary goal was to reduce the energy use of Ethereum as cryptocurrencies are under fire due to their massive carbon footprint. Blockchain power consumption has been reduced by an estimated 99.95%, developers claim, which could tempt powerful institutional investors, previously constrained by environmental, social, and governance (ESG) concerns.
Future mergers and upgrades have also weakened the investment attractiveness of so-called “Ethereum killer” blockchains, said Adam Struck, CEO of venture capital firm Struck Crypto.
However, institutional investors haven’t jumped in yet, as the dreaded macro environment chills risk appetite.
In the long term, though, the switch to PoS is expected to lower the rate of ether token issuance – potentially as high as 90% – leading to higher prices.
In addition, the 4.1% annualized return for validated Ether tokens may be tempting for investors.
However, while the Proof of Stake method allows for such lucrative returns, many crypto proponents point out that it moves Ethereum away from a purely decentralized model where the largest validators can exert greater influence on the blockchain.
However, for the time being, the world of Ethereum might be advised to enjoy the moment of consolidation.
“There could be volatility in the coming days,” said analysts at Kaiko Research. “But for now, the community can take a well-earned victory tour.”