Ethereum Merge now official, but is it fully priced in?

The cryptocurrency market is currently celebrating. On Thursday, September 15, the estimated deadline for the Ethereum blockchain to reach the conditions that would allow it to migrate to the proof-of-stake consensus model, was met. The expected event, known as 'The Merge', because it effectively merged the main chain with the Beacon testnet, has been activated and successfully carried out by reaching the total terminal difficulty (TTD) 58,750,000,000,000T. Ether´s (ETH) price action barely flinches following the news and the question on everyone´s lips is whether the cryptocurrency will be the catalyst for the next bull run.

Firstly, the 'Paris' update was deployed to the so-called execution layer - the Ethereum core network - and, 13 minutes later, Ethereum abandoned the current proof-of-work model. The consensus layer, as this network is also called, where all the developments for the 'Merge' were taking place, joined the execution layer, which completed the migration and rendered cryptocurrency mining for ETH obsolete.

This transition means that Ethereum goes on to reduce its energy consumption by 99%, and that arouses a great sense of optimism among experts and investors, to the point that it is contemplated that Ether´s price will eventually surpass Bitcoin´s. However, analysts believe that until this 'flippening' takes place, the road ahead is long and not without risks.

For starters, "'The Merge' is a very complex technical event, involving not just one large company, but an entire decentralized network, so there is reason to think that problems may arise," stated Marcus Sotiriou, an analyst at GlobalBlock. The vast majority of nodes have been upgraded and both decentralized applications (DApps), as well as connection providers as important as Cloudflare, as well as crypto brokers have closed ranks with the Ethereum upgrade. However, there are other dangers.

"For example, many people in the ecosystem might not be ready to process the new chain, as they haven't updated their software. Also, some of the APIs could break in a way that many cannot predict," Sotiriou explained.

Julius Baer analysts believe the best-case scenario for the 'crypto space' is that this event unfolds as a "non-event," where "the protocol transition goes smoothly and seamlessly," as they indicated. "Any other outcome would likely cause elevated volatility in the cryptocurrency space, not just in Ether´s price," they added. They also cited how investors have been shorting ETH futures as a hedging mechanism against a failure of 'The Merge'.

WHAT TO EXPECT IN THE MEDIUM TO LONG TERM?

Broadly speaking, experts expect choppy price action if 'The Merge' fails, but many predictions point to price levels of $2,000, at the very least, as early as this month. The presumption is that Ethereum's blockchain will eventually sort out all hiccups and the transition will be over.

The long-term implications, thus, "will be hugely beneficial for Ethereum and the crypto space in general," Sotiriou assured.

"With the climate crisis at the top of the global agenda, making one of the largest blockchains more environmentally friendly could lead to increased adoption rates," they claimed from Foerex Suggest. This, "coupled with the fact that cryptocurrency mining will now be significantly more expensive for many, given the huge increase in energy prices over the last year, should lead to some interesting moves in the 'crypto' space in the coming months," they commented.

In fact, research from Forex Suggest earlier this year revealed that a single transaction on the Ethereum blockchain produced more than 42.1841 kilograms of CO2 emissions. This means that total transactions last year produced nearly 22 million tons of CO2 emissions that would require 109.8 million trees to offset. Therefore, if energy consumption is reduced by the expected 99%, 108.7 million of those trees will be saved over the next year and CO2 emissions will be reduced to only 222,222 tons.

ESG narratives represent one of the biggest hurdles for institutional investors entering the cryptocurrency industry, "so 'The Merge' could alleviate this concern and improve the reputation of the entire asset class," GlobalBlock's expert explained.

ETH investors will also receive a return of around 5%. This means that the entire DeFi sector will flourish as investors will have a method to price risk. "Institutional investors also love cash flow, so being able to receive a lucrative yield is another advantage that elevates the attractiveness of ETH," Sotiriou stated.

All in all, experts emphasized that 'The Merge' will spur institutional interest in this asset class. They claimed it could be a catalyst for institutions to enter the cryptocurrency space en masse over the next 5 years.