The Ethereum merge is complete – can the bull market come back?

GB Market Commentary 15/09/2022

by Marcus Sotiriou

It has finally happened. The Ethereum Merge is complete and the most consequential event in crypto’s history was indeed successful. Ethereum critics who said “the merge will never happen” have now been disproven.

The ETH token has also held up well within the first few hours post-merge. This contradicts the overwhelming narrative going into this event from crypto commentators, which was that the merge seemed like a ‘sell the news’ event. This is when the result of an event is priced in as investors anticipate the outcome beforehand, hence potentially leading to a sell-off for ETH as early buyers cash in. However, the longer the ETH token holds up, the more people may start to believe this thesis is wrong, as many were unsure whether the merge would end up actually happening.

The uncertainty in execution is now over, and I think this event will be extremely positive for the whole space in the coming months and years.

ETH now having a yield for investors who stake (lock up) their ETH, this will be a gamechanger in my opinion – not only for ETH, as institutional investors are attracted to yield and cash flow, but for the whole DeFi sector. This is because ETH having a yield could act as a benchmark yield, so institutions can therefore better price risk for DeFi products, with ETH’s benchmark to compare against.

In addition, the reduction in energy consumption should not be underestimated. According to Ethereum Researcher Justin Drake, "the merge will reduce worldwide electricity consumption by 0.2%". One of the biggest, if not the biggest hurdle for institutions entering crypto was the ESG concerns, which has now been almost eradicated entirely with the merge.

These demand side factors do not even consider the supply side dynamic which comes as a result of this transition, where the issuance of new ETH supply into the market decreases by 90%.

There is still news that could come out which affects the optimism of ETH 2.0, like the potential ETH Proof of Work fork could creating some unexpected second order effects to major DeFi protocols. However, so far everything is in order much to the surprise of market participants, including Vitalik! Leading up to the event, Vitalik said he expected Ethereum hashrate to drop 5-10%, as miners rush to sell, yet the hashrate has remained stable.