Ethereum (ETH) Rallies on News of Merge in September
After a series of delays, Ethereum finally set a deadline for the merge of its Beacon Chain. This will move the network a step closer to ETH 2.0, making use of the currently staked tokens.
The immediate effect was that the ETH market price rallied above $1,424.32, leading to liquidations of short positions. Until very recently, ETH was expected to break down under $1,000 and cause a series of liquidations, sinking as low as $600. Instead, ETH extended its weekend rally into the new week.
The news of the impending merger and a new blockchain feature are still not entirely absorbed by the market. The ETH rally was also amplified by a positive weekend where Bitcoin (BTC) recovered above $21,500.
The expected date for the Ethereum merge is September 19, picked for its memetic value as a long-running joke. The “talk like a pirate day” will usher in a new way of Ethereum block production, in which proof of stake will be synchronized with the current mined network.
After setting the expected date, Ethereum developers claim the merge is on track to happen on the preset date, though delays are not entirely out of the question. Until now, Ethereum has delayed the shift to proof of stake for years, usually adding features and disabling the block reward ice age multiple times.
ETH Staking Continues to Expand
The network is already holding significant reserves of ETH in its 2.0 smart contract, holding above 13K ETH. The tokens are valued upward of $17.5B, representing more than 10% of the entire ETH market cap.
The value of staked tokens is also about 30% of funds locked in DeFi. Currently, ETH has significant support from being used as a collateral, with little pressure to sell the tokens. ETH is also valuable as a source of gas fees.
ETH 2.0 staking is also available on the Binance exchange, for a higher return. Staking directly into the smart contract means the funds will only be available once ETH 2.0 launches completely. Most ETH 2.0 staking is also at a loss, made with the expectation of the token rallying higher and making the minimum stake much more expensive. Current staking requires the locking of 32 ETH, remaining illiquid until the full merger.
Staking ETH now means early access to block production rewards once mining is phased out. For now, mining continues at 1 PH/s, down about 20% in the past month. ETH production continues, with close to 120M tokens outstanding, significantly higher than the previously expected 90 to 100M tokens.
Daily active wallets are still around 580K in 24 hours, near the higher range for the past year. ETH is also taken off exchanges and has grown its utility.
The merger announcement also arrives at a time when ETH gas fees are near their lower range. Diminished hype for DeFi, as well as for NFT collections and games is making the network less busy. The network carries upward of 1M transactions per day, though without heightened competition from NFT mints or other events.
Ethereum scaling was necessary during the peak days of the bull market, when on certain days it would be impossible to use the network for normal transactions. ETH still has the utility to move funds between DEX and centralized markets, due to the token’s high liquidity.
Will ETH Gain Against BTC
The recent ETH rally happened to be much stronger than the BTC recovery. ETH reached $1,340 late on the weekend, while BTC retreated slightly to the $21,000 range.
The rapid price move caused more than $15M in liquidations in 24 hours, a result of the multiple decisions to short ETH.
The recent rally sparked new expectations for positive developments ahead of the merge. The most bullish predictions saw ETH move up as high as $5,000 or even $10,000 as it grows its utility and speed.
Will ETH-Based Projects Return
The big problem is that the Ethereum ecosystem still depends on side projects to bring in value. For now, the NFT and gaming markets are much more subdued.
Ethereum scaling has been offered by projects like Immutable X and Polygon (MATIC), where wrapped ETH is used to store value. The recent ETH rally also affected MATIC, lifting the token closer to $0.75.
MATIC is up 34% in the past week, rallying as high as $0.76 late on Sunday. MATIC is one of the widely used tokens to mint NFT items or pay for games, attractive for its low network fees and low per-unit price.
ETH 2.0 will arrive in two stages, and the full evolution from the current Ethereum Virtual Machine to the new type of consensus may arrive later. ETH 2.0 will compete with Layer 2 solutions, including Cardano, Solana, Avalanche, and others.
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