In the eye of the crypto-storm, one currency has soared 100% over the past nine days: Ethereum Classic (ETC).
The Ethereum Merge is approaching, and it has miners spooked that the Ethereum’s price is going to plunge. The Merge, which is expected to roll out on September 19, will see the current Proof-of-Work (PoW) mainnet chain merge with their new Proof-of-Stake (PoS) protocol, also known as Ethereum 2.0.
What will happen to Ethereum’s price after The Merge?
As a result of The Merge, Ethereum’s token (ETH) will become deflationary. Depending on network fees, ETH’s net issuance could decrease by around 0.5% to 4.5%. Concurrently, ETH outflows have hit a year-high, indicating less interest from investors to hold the token as The Merge approaches. Chainalysis reported similar findings: “The change in ETH held on exchanges experienced the largest one-day decrease in 202 days, decreasing by 432.84k ETH to 249.58k ETH.” Many anticipate that this will cause Ethereum’s price decrease, the result of intense uncertainty approaching The Merge.
On the other hand, deflation increases value. Historically, the supply-demand nexus determines the market price point. As the amount of ETH on exchanges decreases (the supply), if the demand for ETH remains the same, despite The Merge, we will likely see a price increase. Analysts anticipate that ETH will reset at $2000/coin.
ETH users will Migrate to ETC
The Merge will move Ethereum’s blockchain from PoW to PoS, which means that existing Ethereum miners will become delegators on the new blockchain.
Such a drastic move will likely cause miners to migrate over to the next best and most similar option: Ethereum Classic. Ethereum Classic is the legacy split chain of Ethereum, the result of a contentious hard-fork in 2016, and maintains the most similar network design and compatibility.
Current Ethereum miners will only need to implement a few upgrades before mining for Ethereum Classic. Given that miners will be forced to mine another crypto asset using the Ethash algorithm, Ethereum Classic is the obvious choice. Speaking at the EthCC conference in Paris, Vitalik Buterin encouraged users unhappy with Ethereum’s evolution to migrate to Ethereum Classic: “It’s a very welcoming community and I think they’ll definitely welcome Proof-of-Work fans,” he said, “It’s not even a joke. If you like Proof-of-Work, you should go use Ethereum Classic. It’s a totally fine chain.”
What to watch
As gains are made on ETC, investors should watch whether the blockchain offshoot of Ethereum can sustain the pressure. Sustainability will be dependent on whether there is continued adoption after The Merge is complete. Without this, there will likely be significant sell pressure that will result in a price pullback.
