The Big Ethereum Merger: Four Trends to Watch

In addition to making blockchain more efficient and reducing its environmental impact, the upcoming Ethereum merger, expected to begin on September 19, is likely to have a complex and profound impact on the cryptocurrency market.

First, let's look at what the transition involves. The current Ethereum mainnet will complete the transition from proof of work (PoW) to proof of stake (PoS) by merging with the beacon chain, while maintaining contract execution functions and complete historical data with the current state of the user. The merger is not just a response to the call to reduce global carbon emissions, but also an important step to lay the foundation for future technological upgrades.

Huobi Global provides an overview of four trends we expect to see after the merger to help readers better understand the market trends of Ether (ETH) and related assets.

 • ETH Deflation Probability

Currently, the newly created ETH (the main token of the Ethereum network) is mostly comes from PoW rewards, accounting for almost 90% of the total. This portion will disappear after the merger, causing a sharp drop in new ETH production, which the community calls a “triple halving.”

However, the amount of ETH destroyed is closely related to the activity on the network: if future activity does not differ significantly from the previous year's activity, the amount destroyed will remain the same. Producing ETH below the amount destroyed could result in ETH deflation.

 • Increased ETH staking

The post-merger Ethereum network will be tipping gas fees on transactions—additional revenue intended to boost revenue—that were not present on the original Beacon chain. This will attract more new investors to stake, taking ETH out of circulation, causing the price to rise.

The actual decrease in the amount of ETH in circulation could be amplified by ETH's staking supply (which is significantly higher than other layer 1 chains), as well as future ETH interest rates, which could attract more ETH to be staked. Relative to deflation, rate increases are expected to have a stronger impact on the price of ETH.

 • Short-term demand for ETC after the fork

Ethereum Classic (ETC) is a separate blockchain that resulted from a hard fork—a major technical upgrade—of the Ethereum network in 2016.. Could the merger lead to another fork as miners displaced by the PoS move look for an exit?

With enough support from ecosystem participants, the forked chain could split the ETH hashrate to reduce miner losses. However, the price of the token must be commensurate with the level of hashrate obtained by the forked chain for the latter to be sustainable. Some investors may buy ETH just to be eligible to receive forked tokens, but this demand will likely be short-lived as it will disappear once the forked tokens are released.

 • ETC Price Increase

With the move to PoS after the merger, PoW miners may switch to ETC, which is one of the blockchains that can be mined with a GPU. This will strengthen ETC's network security and increase trust in the ecosystem. The price of ETC may even rise if the increase in hashrate is accompanied by a commensurate jump in the level of its development.

However, the current hashrate of ETC is negligible and amounts to only 3% of ETH. This means that migrating just 3% of the ETH hashrate will result in doubling the ETC hashrate, which will halve the earnings of ETC miners. The price of ETC must increase to compensate for this decline in revenue, which creates a dilemma: higher prices depend on increased security to gain sufficient support from the ecosystem, but high security is only possible with sufficient hashrate, which in turn depends on miners. which only come when token prices are high enough.

We don't have to wait to find out what happens first since the market has started this cycle. The price of ETC increased, which led to a temporary upward increase in its hashrate. However, whether this can be sustained depends on how well ecosystem development and innovation can keep pace with rising prices.

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