ETH Merge: Impact and possible trading strategies
Yes, it seems that the merge is finally happening sometime between September 13th and 15th, after many testnets and even more delays. Though there are always technical and other circumstances that could push it back. The great Ethereum merge is a major step to get Ethereum from PoW to POS, massively reducing its environmental impact, leaving mining behind, and just making Vitalik Buterin happy — he’s an overall nice guy, so that’s great. What does that mean to traders?
The merge effect
The merge’s protocol is supposed to reduce the issuance of new ETH by ~90%. Additionally, each validator’s initial 32ETH and new issuance will be locked for up to 12 months following the merge. Both of these measures are generally seen as deflationary.
Since the merge will replace miners with validators, it is a major shift in who will keep the network running, though most big miners should have no issue becoming full validators by locking 32ETH or stake as little as they want via Coinbase and other exchanges that allow partial staking.
Staking earnings
According to some calculations, full validators may be able to earn 6–15% APR on staking, equivalent to roughly 2–5ETH on that initial 32ETH stake. Partial staking returns depend on the fees charged by the platform facilitating the staking (such as Coinbase).
Going against the merge
Understandably, miners are not too happy about Ethereum becoming a PoS chain without any mining at all. So they want to fork ETH and airdrop ETH PoW token to ETH holders. And some traders see an opportunity there to play the fork.
Of course, if you are not an experienced trader, be very careful with any short-term moves and don’t get involved into anything you don’t understand.
Some are saying that it’s better to hold ETH in your wallet rather than an exchange because not all of them support the fork. Based on what the team behind ETH PoW published so far, if you have ETH now, after the fork you should get ETH PoW too (jthough the price of 1 ETH PoW is expected to trade significantly lower than the PoS ETH).
CAVEAT: Not every wallet will support the fork and thus get you ETH PoW. Again, DYOR.
The exchanges
Remember the golden rule of crypto: not your wallet — not your crypto. Some exchanges will support the fork and some will not. Smart traders always do their research carefully and only trust sources connected to the actual exchange. For the Dexe Network, we’re lucky to have DEX/CEX experts in our ecosystems, specifically the team of the Kattana trading terminal.
The right kind of ETH?
Some traders warn that, If not careful, you could easily have ETH that does not qualify for the fork’s aidrop. To minimize that, they suggest making sure that all of your ETH is unwrapped (aka, swapped from WETH and other various staked ETH versions) and is on the Ethereum Mainnet (aka, not Optimist, Gnosis, Arbitrum, Polygon, and so on — some of them may support the fork but DYOR). This means removing all ETH you have as collateral somewhere (as in providing liquidity, for example). Some of those who have ETH anywhere but sitting idly in their wallet have been seen to unstake, unfarm, unprovide all ETH to make sure it counts for the drop. Again, there are various strategies and opinions out there — be careful with your funds.
Too much ETH?
Some traders even go as far as borrowing more ETH to get it counted for the airdrop snapshot. But keep in mind that when a lot of people buy a specific asset in anticipation of some beneficial event, the price tends to spike. And once the event passes, people have a tendency to dump the asset, which — surprising no one — can cause the price to collapse. So be aware of market implications of your airdrop strategies.
Contrarian strategies
Some predict that people will be selling their staked Ethereum (stETH) prior to the merge in order to have more ETH available for the snapshot. If that results in the stETH price to fall significantly, maybe it’s a good opportunity to buy it and wait for a rebound?
Similarly, if there is enough buying pressure on ETH pre-fork to drive the price up, maybe a bet against the price of ETH is a smart move. None of this is financial advice, just some thoughts for traders to research on their own.
In any case, there are certainly a number of long-term and short-term plays to be made on the merge. And since DeXe is founded by passionate crypto traders, it’s an exciting time and an interesting case study both in the merge’s immediate aftermath and in how it will affect the functioning of the ETH network and projects that use it.
Once the DeXe Investment is released, traders can even create entire funds based on fork strategies. Then the real fun begins.
Stay tuned!
Website | Telegram channel | Telegram chat | Facebook | Medium| LinkedIn | Twitter | Reddit| Discord
