The Merge has not been fully priced in—ETH still holds significant potential.
Authored by Hal Press, Founder of North Rock Digital
Compiled by AididiaoJP, Foresight News
The Largest Structural Shift in Crypto History
As the Ethereum Merge approaches, we’ve prepared this guide to help investors navigate the opportunities surrounding Ethereum’s transition to Proof-of-Stake (PoS). This follows our January 2022 analysis, where we predicted Ethereum would undergo crypto’s most significant structural transformation. While some assumptions have evolved, the core thesis remains unchanged.
Key Update: The final testnet, Goerli, has successfully merged, and the mainnet Merge is scheduled for September 15–16, 2022.
Post-Merge, Ethereum will become crypto’s first large-scale structurally demanded asset. This guide explores critical fundamentals like supply reduction, staking yields, and market dynamics to assess ETH’s investment potential.
Market Dynamics Pre-Merge
- User Activity: Despite ETH’s price drop since December 2021, active users have steadily risen since late June.
- Gas Fees: Optimizations by dApps (e.g., OpenSea’s 35% reduction via Seaport) have kept fees low despite increased activity.
- Adoption Balance: Ethereum’s "sweet spot" balances fee burn (deflationary pressure) with adoption-friendly gas costs.
Insight: Current low fees mildly impact ETH’s deflationary model but boost adoption—a net positive long-term.
Post-Merge Supply Shock
| Metric | Pre-Merge | Post-Merge |
|--------------------------|---------------------|---------------------|
| Daily ETH Issuance | ~13,500 ETH | ~1,080 ETH |
| Miner Sell Pressure | ~80% of issuance | 0% |
| Net Daily Flow | -$18M outflow | +$300K inflow |
Implications:
- Miners currently sell ~10,800 ETH/day ($18M). Post-Merge, this sell pressure vanishes.
- Stakers lock ETH, creating structural demand. Even at 5% yield, ETH becomes high-yield crypto’s best asset.
👉 Why ETH’s yield could attract institutional capital
Ethereum’s Time Value
Unlike traditional assets, most crypto projects bleed value due to inflationary tokenomics—except BNB and (soon) ETH. Post-Merge:
- 5% Real Yield: ETH holders earn passively, incentivizing long-term holding.
- Institutional Appeal: Actual yield could accelerate adoption by conservative investors.
Comparison: BNB/BTC outperformed due to BNB’s yield. ETH’s yield will be 3–5× larger.
Addressing Merge Concerns
- PoW Fork Risk: A minority may fork Ethereum’s PoW chain, but this won’t threaten PoS ETH. Holders may even profit by selling forked tokens.
- Execution Risk: Extensive testing (e.g., Goerli) and multi-client redundancy minimize technical failures.
Market Sentiment: Only ~66% believe the Merge will succeed by October—creating upside if proven wrong.
Investment Strategies
1. ETH/BTC Trade
- Why? PoS is fundamentally more secure/scalable than PoW. ETH’s supply shock (90% issuance drop) dwarfs BTC’s halvings.
- Target: ETH could flip BTC long-term as its structural demand grows.
2. Liquid Staking Derivatives (LSDs)
- Top Picks: Lido (LDO), Rocketpool (RPL), Stakewise (SWISE).
- Catalyst: Post-Merge, LSD protocols see 4–7× revenue growth as staking demand surges.
👉 How LSDs like Lido benefit from the Merge
FAQ
Q: Is ETH’s current price factoring in the Merge?
A: No. Market skepticism and macroeconomic headwinds have muted pricing. Post-Merge fundamentals could surprise.
Q: What’s the biggest risk?
A: Macroeconomic downturn. If inflation persists, crypto may remain bearish despite ETH’s improvements.
Q: How does PoS improve ETH’s security?
A: PoS is 10–33× more efficient than PoW. Attack costs rise with ETH’s price, creating reflexive defense.
Conclusion
The Merge is a singular event in crypto history, reshaping ETH’s investment thesis:
- Supply Shock: 90% fewer ETH enters markets daily.
- Yield Demand: 5% real yield attracts institutions.
- Long-Term SoV Potential: ETH could surpass BTC as crypto’s reserve asset.
Action: Accumulate ETH and LSDs pre-Merge—before the market fully prices in this transformation.
Disclaimer: This is not financial advice. Conduct your own research before investing.