Cryptoverse: After Merge, Ether Heads for $20 Billion Splurge in Shanghai

Cryptoverse: After Merge, Ether Heads for $20 Billion Splurge in Shanghai

Souvenir tokens representing the Bitcoin, Ethereum, Dogecoin and Ripple cryptocurrency networks are submerged in water in this illustration taken May 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

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Sep 20 (Reuters) – Fusion came, saw and conquered. Not that you would guess from the prices of cryptocurrencies.

The mega upgrade of the Ethereum blockchain finally went live on September 15, moving it to a less power-hungry “proof of stake” (PoS) system with hardly any hiccups. read more

Even though anticipation of the event had sent ether up about 85% from its June plateau, it has since plunged 19%, hit along with bitcoin and other risk assets by investor angst over the inflation and central bank policy.

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Nonetheless, many market players are optimistic about the long-term prospects for Ethereum and its native cryptocurrency.

“Previously, we have spoken with sovereign wealth funds and central banks to help build their digital asset allocations… but direct investment has been rejected due to energy concerns,” said Markus Thielen, chief investment officer at asset manager IDEG Limited.

“With Ethereum moving to PoS, this clearly resolves this last pillar of concern.”

Some crypto investors are now turning their attention to the next event that could shake up prices.

The next significant upgrade for Ethereum is “Shanghai”, expected by market participants in about six months, which is aimed at lowering its high transaction costs.

It would allow validators, who have deposited ether tokens on the blockchain in return for a return, to withdraw their staked coins, hold them, or sell them.

The stakes are high: More than $20 billion in ether deposits are currently locked up, according to data provider Glassnode.

The staked cryptocurrency ether, seen as a gamble on the long-term success of Ethereum as it cannot be redeemed until Shanghai happens, is trading almost on par with ether at 0.989 ether, according to data from CoinMarketCap, indicating confidence in future updates.

The currency had fallen as low as 0.92 in June.


Beyond Shanghai, a host of other upgrades are planned for Ethereum, which co-founder Vitalik Buterin has dubbed “the surge”, “on the brink”, “purge” and “splurge”.

The main focus of future upgrades is likely to be the ability of the blockchain to process more transactions.

“Because the merger has been delayed for several years, investors, traders and end users are very concerned about when Ethereum will scale significantly,” said Alex Thorn, head of enterprise-wide research at the bank focused on GalaxyDigital blockchain.

Paul Brody, Global Blockchain Leader at EY, said: “The future of Ethereum must, and will, scale to hundreds of millions of transactions per day.”

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The main goal of Merge was to reduce Ethereum’s energy usage as cryptocurrencies come under fire for their huge carbon footprint. Blockchain power consumption has been reduced by about 99.95%, developers claim, which could tempt powerful institutional investors previously constrained by environmental, social and governance (ESG) concerns.

The merger and future upgrades also reduce the investment attractiveness of so-called “Ethereum killer” blockchains like Solana and Polkadot, said Adam Struck, CEO of venture capital firm Struck Crypto.

However, institutional investors are yet to jump in as a fearsome macro environment cools the waters of risk appetite.

However, in the longer term, the move to PoS is expected to reduce the rate at which ether tokens are issued, potentially by as much as 90%, which should drive prices higher.

Additionally, the 4.1% annual returns for staking ether tokens to validate transactions could be tempting for investors.

However, while the proof-of-stake method allows for these lucrative returns, many crypto purists point out that it moves Ethereum away from a purely decentralized model, as larger validators could wield more influence over the blockchain.

However, for the time being, the Ethereum world could be advised to enjoy the Merge moment.

“There may be volatility in the days ahead,” analysts at Kaiko Research said. “But for now the community can take a well deserved victory lap.”

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Reporting by Lisa Pauline Mattackal and Medha Singh in Bangalore; Edited by Pravin Char

Our standards: the Thomson Reuters Trust Principles.

The opinions expressed are those of the author. They do not reflect the views of Reuters News, which, according to the Trust Principles, is committed to integrity, independence and freedom from bias.

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