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Misconceptions About Ethereum’s Upcoming Merge

 
 

The death of Ethereum.

Is it even possible?

With the recent events at least, many are wavering like a scared dog during a thunderstorm. That’s why I’m here to give you the truth about this situation, and it might not be what you want to hear.

The Merge is no longer getting people excited. It worries them — and with good reason.

In an interview with the Bankless podcast, leading Ethereum developer Tim Beiko pushed the Merge back between August and November. “I’m just not as convinced that targeting more than a rough target, date-wise, is possible,” he said. “However I think for it not to happen this year you’d need a catastrophic event, failure, or series of normal bugs.”

There’s a lot going on with Ethereum, and if you’re an investor, this is what you should know:

Misconceptions About the Merge

First, let’s clear some things up about the Merge. The Merge will not:

Reduce gas fees (i.e transaction costs)

Allow you to withdraw your staked ETH

Be delivered on time

The Merge will, however:

Reduce issuance rates of Ethereum tokens

Have zero emissions for 9 months after the Merge, thus reducing sell pressure ( after that then POS finally unlocks)

Have a triple halvening, which is another way of saying that the Merge will have the same effect as 3 Bitcoin halving events. In other words, all of the reduction in Ethereum’s supply upon a successful Merge will be like 4 years in Bitcoin time.

Ok, that’s the good news. Here’s the bad.

Staked Eth is Depegging

A potential Terra Luna shitshow is stirring in the Ethereum ecosystem.

Lido Staked Ether (stETH), a token from the Lido protocol that is supposed to be 100% pegged by Ethereum is losing its peg. Currently, Lido staked Ethereum is off its peg by 4% meaning that sell pressure is growing.

The message is crystal clear: Some whales and institutions have lost faith in the Merge and they’re derisking themselves.

Thankfully, and unlike the Terra Luna situation, staked Ethereum is guaranteed by smart contracts, meaning every stETH is redeemable 1:1 by ETH that is currently locked. This means that the Lido problem is not a backing issue, as in Terra Luna situation, but a liquidity issue.

Where this situation could get ugly is that a lot of whales, including the Celsius Network, got into leveraged positions to take advantage of stETH yields. This means that stETH being worth less than ETH can cause a short-term crisis where whales are forced to sell which further messes up the peg, creating a downward spiral.

In normal plain English: Crypto lending platform Celsius is leveraged up to their eyeballs and that amount of risk may mess with the price of Ethereum and the solvency of their own company.

“If customers start withdrawing from Celsius, they will have to sell their stETH,” Bitcoin investor and independent analyst Brad Mills explained. “Celsius has liabilities of 1 million ETH. So, 288k are inaccessible until [the] Merge, ~30K are lost, ~445k are stETH, and 268k are liquid. Could cause a run.”

Celsius Might Go Insolvent

Celsius has a massive staked Ethereum position worth $1.5 billion.

To remain solvent they’ve already started borrowing stablecoins against their position. If the price of Ethereum continues to fall and Celsius is forced to sell, it could trigger a domino effect that could severely tank the crypto markets.

What makes all of this more interesting is that Celsius put a target on their back when they led the charge to sell Terra Luna/UST and collapse their project. Now, this could be payback against the Celsius network.

Keep in mind all of this could be internet conspiracy FUD (Fear Uncertainty and Doubt), but one thing is for certain, Celsius is in a very precarious position.

And let me reiterate: 1 staked ETH is BY NATURE OF SMART CONTRACT redeemable for 1 ETH, so the peg will most certainly be regained in the future; but that doesn’t mean there can not still be enormous sell pressure on ETH in the short term.

Ethereum is Bleeding More Against Bitcoin, Here’s Why

The potential for an Ethereum price collapse is more likely than Bitcoin.

According to price analysis Nik Bhatia, “Ethereum is showing a pattern that is mirroring the death of other altcoins.”

“This is only a price study opinion, and I’d be quick to change this opinion of the price reverses but right now, the price of Ethereum Vs. Bitcoin is looking very suspect.”

— Nik Bhatia

I have a few theories as to why Ethereum is doing worse than Bitcoin:

NFTs are in an “as long as I don’t sell I haven’t lost money r-right?” phase.

DeFi and CeFi rewards are free-falling and full of scams.

Ethereum developers are forming factions, including one who called “Ethereum too complex for its own good.”

And the merge likely won’t come in August (when it was promised), and when it does, it won’t address gas fees.

I don’t want to turn this newsletter into more “when Merge?” content, but deadlines are important, especially for those of us who invest in Ethereum.

Ultimately, and this is a good place to end on, Ethereum does have better long-term value than Bitcoin, in my opinion.

When we get the Merge Ethereum will be deflationary, as well as have a more sustainable consensus mechanism a la proof of stake. If things work out, Ethereum can even beat the narrative of Bitcoin being the best store of value.

Be Very Careful Out There

This bear market has taught me a few valuable lessons:

Don’t keep your money on centralized exchanges as they act like they are FDIC secured when they are not, and they are the most sketchy during bear markets

Unrealistic returns like 20%+ fail during bear markets and therefore should be avoided almost entirely

And finally, there is no perfect inflation hedge. During a recession, everything bleeds.

So whatever you do, be careful out there. This market is very young and anything can happen.

 
 
 
 

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