Ethereum to Record a Hyper-Bullish Year On the Completion of The Merge

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If you’re familiar with Ethereum and the developments around this project, you’ve probably come across talks about “The Merge.” This upcoming event is undoubtedly going to be one of Ethereum’s most notable milestones and is expected to have massive bullish consequences for the cryptocurrency in the coming months.

Interestingly, this event, slated to occur anytime from June this year, has not been priced in by the market yet. So, what exactly is The Merge?

A Quick Brush Up on The Merge

In simple terms, The Merge is the transition of the Ethereum network from the Proof-of-Work (PoW) consensus mechanism to the much more efficient Proof-of-Stake (PoS) validation method. This transition means that Ethereum moves from using the energy-intensive POW mechanism to a more decentralized and scalable network of nodes “staking” their ETH assets in special wallets.

While there are numerous ways this upgrade could be beneficial to the Ethereum network, explained below are three reasons this change could be hyper-bullish for ETH:

Dwindling Supply

In August 2021, Ethereum launched the EIP-1559 protocol upgrade, which introduced the burning (permanent destruction) of a certain amount of ETH coins on every transaction. By doing so, this upgrade exerts pressure on the circulating supply of ETH, thereby boosting demand.

Crypto analytics company IntoTheBlock recently revealed that since August, Ethereum has burned over two million coins, worth $6.3 billion using the current exchange rate. Of that two million tokens, 766,720 ETH (or 38.3% of all burned ETH), were burned within the last three months.

Based on basic economic principles, the dwindling supply triggered by the constant burning means more demand and more bullish momentum for the cryptocurrency in the long term.

A Better Structured Incentive System

Currently, PoW miners need to offload most of their ETH rewards to cover electricity bills and other overhead costs. This deprives most of them of the chance to hold and grow their asset over a long period. That said, a PoS system eliminates this selling pressure, there would be no need for mining and, thus, no overhead or electricity costs.

Stakers will also be highly incentivized to HODL as the yield for staking would jump from 4.8% to 10-15% once The Merge is a reality.

The Triple-Halving

The last benefit of the transition is that the network will undergo what many call a Triple-Halving.

This terminology is derived from the Bitcoin “halving event,” where miners’ rewards are slashed by half, thereby effectively reducing the influx of new coins in the market and cutting supply.

Halving events also slash the inflation rate on the Bitcoin network. Previous halving events have correlated with major bull and bear cycles, with prices typically ending up higher than before the halving.

For Ethereum, however, the network’s annual inflation rate will plunge from 4.3% to 0.43% after The Merge. That is the equivalent of three Bitcoin halvings at once. If a BTC halving event can triple the price of Bitcoin after one halving cycle, think of what would happen to Ethereum after recording the equivalent of three halvings.

In summary, with the combination of all three factors, including dwindling supply, more long-term holders due to better incentives, and a triple halving, Ethereum could experience a “supply shock.” This could lead to the most bullish rally the crypto has recorded in its history.

 

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Azeez Mustapha

Azeez Mustapha is a trading professional, currency analyst, signals strategist, and funds manager with over ten years of experience within the financial field. As a blogger and finance author, he helps investors understand complex financial concepts, improve their investing skills, and learn how to manage their money.