Ethereum (ETH) price is trading lower this week after yesterday’s hotter than expected US CPI report for August. Cryptocurrency investors have all their eyes on today when the highly anticipated migration from Proof of Work (PoW) to Proof of Stake (PoS) is scheduled, the event also known as the “merger.” “.
Looking at the data, the world’s second-largest cryptocurrency is facing an increasing number of short positions in the derivatives market as investors seek to mitigate risk ahead of the long-awaited merger event.
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Funding rates for Bitcoin and Ether perpetual futures significantly deviated last weekendEther’s funding rate hitting its lowest point in over a year, according to data from Kaiko.
Although the merger is a highly anticipated development in the crypto world, an increase in the number of short positions in Ether could be due to investors looking to hedge risk, as the price of ETH has risen significantly. appreciated in recent weeks, while financing rates on the other. , collapsed.
“With the meltdown happening this week, people may be hedging because ETH price has mostly gone up while funding rates have turned negative,” said Andrew Tu, head of growth at the crypto trading company Efficient Frontier.
Ethereum price fell nearly 9% this week to trade near $1,600 just days after testing the $2,000 handle.
Why is fusion so important?
Considered by many to be the most significant crypto event of the past decade, the merger is expected to reduce Ethereum’s carbon emissions by 99% and thereby address one of the blockchain’s top criticisms. It will also prevent the blockchain from depending on miners and allow users to stake ETH in order to become the so-called “validators”. Like miners, validators will also be responsible for validating blockchain transactions and ensuring its security.
Overall, the migration is expected to significantly improve blockchain security and make it greener. The current PoW model allows miners to increase their chances of success “by investing in more powerful hardware, creating the conditions for an arms race, as miners acquire increasingly power-hungry mining equipment.”
On the other hand, the upcoming PoS model will allow validators to use their personal ETH holdings as collateral, and their “staked ETH”. [ether] can be destroyed if the validator misbehaves, with stiffer penalties for more nefarious actions,” says a post on Ethereum.org.
As such, the PoS system should encourage active and honest efforts to protect the network with significantly lower energy costs. The different types of Ethereum wallets will continue to be available, in the Ethereum 2.0 upgrade – but with some changes on the back-end.
The transition will also make entry easier for Ethereum users as they will only need to load three programs and stake their own ETH to trigger the validation software, which should make the validation process “more decentralized”, said Lin William Cong, a FinTech director at Cornell Initiative.
According search for The Tokenist, what is even more important is the impact of Merge on the energy efficiency of Ethereum. Today, many crypto promoters and investors don’t know how much electricity is spent on mining and trading – but institutional investors are.
As of September 13, Ethereum’s annual energy consumption is similar to that of the entire Chilean country, while its carbon footprint is comparable to that of Finland. Additionally, a single Ethereum transaction expends enough energy to power an average US household for more than 7 days. Cong thinks the impact on energy efficiency is the most exciting part of Ethereum 2.0.
Bank of America strategists believe the new PoS Mechanism Could Increase Institutional Adoption.
“The significant reduction in energy consumption post-merger may allow some institutional investors to buy the token that was previously prohibited from buying tokens running on blockchains by leveraging proof-of-work consensus mechanisms ( PoW),” said strategists Alkesh Shah and Andrew Moss.
This would allow investors to generate high-quality returns as validators instead of profiting from “black box lending/borrowing apps”.
At the same time, some crypto investors believe the merger will facilitate another drop in Ethereum’s price. This would mean that the upward movement from June to August was the result of “buying the rumor” while the ongoing selling just before the event, as well as after, would be “selling the news”.
Ethereum price reached its all-time high of $4,866 in November 2021.
The highly anticipated migration of Ethereum from PoW to PoS is expected to take place tomorrow. In the meantime, ETH price is taking a beating in response to worsening sentiment towards risky assets.
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