Ethereum: Is the Merge underrated or is it priced in?

• GlobalBlock analyst Marcus Sotiriou talks about the Ethereum merge, its benefits and potential risks to the event.
• He says the yield factor and a 99.95% reduction in energy use could see DeFi flourish and catalyse investor interest.
• But it’s a ‘complex technical event’ that one.

Is the merge underrated or is it priced in? It could be a crucial question for investors as crypto enters what could be a pivotal week for crypto, according to crypto analyst Marcus Sotiriou.

The countdown to Ethereum (ETH)’s most anticipated event – the Merge – is down to hours. And despite the price hovering below $1,750 after last week’s downside, optimism is still high that the major event will succeed.

Or will it…

Is it underrated or priced in?

We saw ETH price rally in the days after the merge date announcement before the momentum fizzled out alongside the rest of the crypto market.

But price continues to struggle, currently around $1,730 since last week’s dip. For investors, one of the questions to consider going into the event is whether the ETH merge is already priced in or if the market has underrated its potential impact.

Here is something to remember about the merge.

The benefits

Sotiriou, an analyst with digital asset broker GlobalBlock, says the merge is no doubt “the most impactful event that has happened in the crypto industry thus far.”

The advantages of the changes are there. For instance, reduction in network energy usage by 99.95% is great for the ESG narrative. Basically, it helps remove one of the hurdles to increased institutional interest in ETH and the broader ecosystem – concerns over crypto mining and its energy consumption.

Another long-term implication the analyst sees is around the 5% yield for ETH investors and its impact on wider DeFi space. Knowing how to price in risk based on the yield will not just benefit retail DeFi, but institutional investors too.

“Institutional investors love cash flow,” he pointed out in the note, “so being able to receive a lucrative yield is another enticing benefit which could make ETH more investable for them.”

A ‘complex technical event’ – beneficial but with risks

Many investors see Ethereum’s transition from a proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS) mechanism as a positive event bound to happen this time round after several delays. 

However, Sotiriou warns it might not be smooth sailing all at once when the Beacon Chain merges with Ethereum mainnet.

Some observers say that an unforeseen delay, or some other technical hurdle that makes the switch messy could still pop up and frustrate investors. Issues could also arise if many validators fail to update their software in time and therefore be unprepared for the new chain, or if some APIs “break in ways which many people cannot predict.”

Sotiriou sums up the risks thus:

“The Merge is such a complex technical event, which is not surrounding just one big company, but a whole decentralised network, so there are reasons why it may not play out so smoothly.”