Will Ethereum Continue to Be Profitable
Ethereum's (ETH) transition from proof-of-work (PoW) to the proof-of-stake (PoS) consensus mechanism has finally happened. Dubbed 'The Merge', the shift is part of the Ethereum 2.0 upgrade.
With cryptocurrencies being as unpredictable as they are, there is plenty of speculation concerning what will happen now The Merge has taken place. The truth is, no one knows for sure, but there are more than a few possibilities.
Though there had been some hope that the coin's value would shoot up following The Merge, the reverse has happened, with the price of ETH falling by roughly 20% since The Merge at the time of writing (14 October 2022).
Part of this may have been down to concerns that a change in the blockchain's operations could lead to more regulation, at least in the United States.
Securities and Exchange Commission (SEC) chairman Gary Gensler was reported to have said the new method of operation could lead to it being considered a security, according to theWall Street Journal. And a lawsuit filed by the SEC suggested that the blockchain could fall under its remit.
Legal papers in the case against crypto investment manager Ian Balina said that "ETH contributions were validated by a network of nodes on the Ethereum blockchain which are clustered more densely in the US than in any other country. As a result, those transactions took place in the United States."
Anticipation of the upgrade had driven a rise in cryptocurrency prices, according to Dutch bank Saxo's cryptocurrency analyst Mads Eberhardt.
"Based on Ethereum's price activity in July compared to the one of Bitcoin, traders undoubtedly favour holding Ethereum on The Merge. In our view, the positive sentiment in Ethereum has positively influenced the price actions of the rest of the space, including Bitcoin," Eberhardt wrote in an update on 1 August 2022.
Eberhardt had previously referred to The Merge, which was finally completed at around 7.45am on 15 September 2022, as "one of the most influential events in the history of crypto by impacting Ethereum both technically and economically".
What is The Merge and what impact will it have on the price trend of Ethereum's native cryptocurrency, Ether? In this article, we look at the latest developments in the PoS transition and what other factors will shape the Ethereum price prediction.
How will The Merge change Ethereum's operation?
The transition to PoS from PoW has changed the way the Ethereum blockchain verifies transactions. Rather than using miners who consume vast amounts of computing power to validate and create new blocks, validators now stake the native Ethereum coin ETH to the network, therefore dramatically reducing energy consumption.
"With respect to Ethereum, a new block is currently finalised around every 13th second. In these 13 seconds, every miner fights to be the one to finalise the block. This involves applying computing power and thus requires electricity," Saxo's Eberhardt noted.
"However, in the end, it is solely one miner that finalises the block and verifies the transactions, even though other miners have spent a tremendous amount of energy on the same block.
"In terms of proof-of-stake, one validator is randomly chosen to finalise a block based on one's amount of ether staked. This happens prior to the block, so no other staker is trying to finalise the same block, ultimately reducing Ethereum's energy consumption by around 99.95%."
PoS will also improve the economics of the Ethereum blockchain, as under PoW, Ethereum issued 5.4 million ETH to miners annually, but it will only issue around 500,000 ETH to stakers. This could reduce inflation and could see ether become deflationary, as a portion of the fees for each transaction will be burned, lowering the coin's overall supply.
That could have an impact on the Ethereum coin price prediction.
The Merge should not have any other impact on ETH holders. It is not expected to affect tokens or smart contracts running on the blockchain. Decentralised applications (dApps) should function as before.
The Merge should not significantly increase Ethereum's scalability, as the introduction of shards, which split a blockchain into smaller sections, will take place next year.
When sharding is complete in 2023, it will supercharge the speed of ETH, allowing 100,000 transactions per second, up from the current level of just 25. It will also cut gas fees, making transactions much cheaper.
The Ethereum development team successfully ran the first public test of The Merge on 8 June 2022 on the Ropsten test network (testnet). Testnets are effectively copies of a blockchain that allow developers to test new features before applying them to the live blockchain network, or mainnet. As testnets are full-scale blockchains, they grow over time which makes them harder to maintain.
On 21 June 2022, the Ethereum Foundation, which develops the network, announced that two other testnets, as well as Ropsten, will be shut down after The Merge.
The Kiln Merge testnet, which was launched earlier in 2022, will be shut down shortly after the transition to PoS. Ropsten, which was Ethereum's longest running PoW testnet before its transition to PoS, will be shut down in the fourth quarter of 2022. Rinkeby, a proof-of-authority testnet, will not transition to PoS and will be shut down in the second or third quarter of 2023.
The closure of the three testnets will leave two other testnets to be maintained over the long term, Goerli (or Görli) and Sepolia. Goerli will merge with the Prater Beacon Chain testnet and a new Beacon Chain has been created to transition Sepolia to PoS, the foundation said.
In early July, Sepolia became the second Ethereum test network to successfully transition to PoS without any major problems. The Ethereum Foundation announced on 27 July that the Goerli testnet merge was scheduled for a block on the chain that would probably be reached between 6 and 12 August.
According to a blog post by the Ethereum Foundation, the upgrade was expected to be fully complete at some point by 20 September. Eventually, it took place on the morning of 15 September.
ETH price around the merge
The ETH coin price dropped sharply in the first half of the year despite the approach of The Merge, as cryptocurrency markets turned bearish, especially following the collapse of the terraUSD stablecoin (UST) and its accompanying LUNA token in May.
The ETH price started the year at $3,683.05 and moved up to $3,876.79 on 4 January 2022. It then turned lower, dropping to $2,172.30 on 24 January as crypto markets sold off. While the coin moved up to $3,271.32 on 10 February, by 24 February 2022 it had traded down to $2,308.91.
The market again attempted to stage a recovery, trading up to $3,573.96 by 3 April 2022, but ETH was unable to sustain the gains, again turning lower. With the terra crash, the ETH price dropped below the $2,000 level to $1,748.30 on 12 May.
A further sell-off brought the price down to $896.11 on 18 June 2022, its lowest level since late 2020. ETH price analysis shows the market then rallied, soaring by 98% from that low to a high of $1,774.58 on 28 July 2022, after the Ethereum Foundation announced on 27 July that the Goerli merger would go ahead.
The coin then slipped somewhat, reaching a low of $1,500.01 on 7 September, before news of the completion of the Bellatrix upgrade and the announcement that Swiss bank SEBA would give its customers access to ETH staking saw it trade at about $1,625 on the morning of 8 September 2022.
By the afternoon of the next day, it was worth about $1,720. This price came after the news that the Kiln, Ropsten and Rinkeby testnets would shut down.
Google then installed a counter on its Ethereum Merge search page which suggested The Merge could take place in the early hours of 15 September. By 13 September, ETH was worth about $1,710, but market conditions meant that it fell sharply over the course of the following 24 hours and, on 14 September, it was worth about $1,610.
Following the news of The Merge's completion, the coin went up, meaning that on 15 September it was trading at around $1,640. In the 24 hours after that, though, the price dropped sharply, and on 16 September, it was worth about $1,450.
Over the next few days, the fall continued, with ETH trading at around $1,360 as of 20 September before dropping to a low of $1,229.43 the following day. By 23 September, it was worth about $1,340. The price struggled, despite the news that the issuance rate of ETH had dropped considerably since The Merge, and on 26 September 2022 it was trading at around $1,285.
By 30 September, though, things had improved, with the coin trading at around $1,335. By 7 October, the coin was trading at around $1,355, up from the previous week but down from the previous day's high of $1,380.40. A week later and at the time of writing it had dropped somewhat, to trade at around $1,325.
Ethereum co-founder Joe Lubin said the coin's poor performance post-Merge was down to poor macroeconomic conditions, describing it as a "tail that is being wagged by a very sick dog".
What might happen after The Merge?
Although the markets and many ETH holders have been looking forward to The Merge, there has been some concern among the blockchain's miners, since they stand to lose a fair amount of potential income after the switch to proof-of-stake.
As a result, some miners got together to create something called ETHW, which is a version of Ethereum that will operate with a proof-of-work consensus mechanism. On 12 September, the group – calling itself ETHW Core – tweeted that its mainnet would go live within 24 hours of The Merge.
This came to pass, with the new coin worth about $13.45 on the morning of 16 September, but by the same time on 20 September it was worth about $7. By 22 September it was worth about $5.85, but on 24 September it reached a high of $13.78.
The price fell after that, though, and on the morning of 26 September ETHW was trading at around $9.80. There was something of a recovery in the days that followed, and by 30 September 2022, it was worth about $12.25. As of 7 October, ETHW was trading at around £8.12, but by 14 October 2022 it was down somewhat to around $7.50.
While this will not be the first time that ETH has gone through a fork – for instance, one such fork helped create the Ethereum Classic (ETC) crypto – it's worth keeping an eye out for any developments on that front.
There is also the possibility that something could go wrong because of The Merge, causing major reputational damage to Ethereum – although so far, it has been running smoothly. For instance, there could be a glitch in the blockchain, or one of the new validators could act maliciously, thus damaging the system's reputation.
If that were to happen, then the chances are that investors and developers will want someone, or something, to blame. This could well end up being Ethereum itself, which could lead to people taking their money out, causing what would almost certainly be a collapse that could devastate the crypto market.
Just another PoS blockchain?
Also, if something goes wrong because of the The Merge, that could lead to a notable liquidity drain, which in turn could lead to DeFi prices becoming incredibly volatile.
It is also possible that, without proof-of-work, it could become just another proof-of-stake blockchain like its competitors, such as Solana (SOL), Polkadot (DOT) or Avalanche (AVAX).
That said, chains like those three, Tron (TRX), Tezos (XTZ) and Algorand (ALGO) could also benefit. While the six cryptos we've mentioned have all dropped in price over the past three months, there remains the possibility that The Merge could benefit them.
There is also the matter of non-fungible tokens (NFTs). Since most, if not all, NFTs are based on Ethereum, the potential for a variety of forks could make it confusing for some NFT holders to know exactly what they own and where exactly that is. That could, in turn, lead to a growth of NFT scams, with items listed for sale which are not, in fact, for sale.
It is not just within the NFT market that we face the possibility of scams, though, as there remains the possibility that falsely declared airdrops and support scams could rob people of their money.
Ethereum price prediction
What is the outlook for the Ethereum price following The Merge? Let's take a look at some of the Ether price predictions that were being made as of 14 October 2022.
Keep in mind that price forecasts are often wrong. Also, it is important to note that long-term crypto price predictions are often made using an algorithm, which means that they can change at a moment's notice.
As of 14 October 2022, CoinCodex had a mixed near-term Ethereum crypto price prediction, expecting ETH to drop to $1,058.01 by 19 October 2022 before dropping to $737.17 by 13 November.
The Ethereum price prediction for 2022 from Gov Capital anticipated the coin moving to $1.880.63 by the end of the year, before potentially climbing to $4,170.86 by the end of 2023 and $10,384.51 by the end of 2025.
DigitalCoinPrice gave an Ether forecast for 2025 of $3,480.78, lower than Gov Capital's. It projected that the price could average $1,349.41 in 2022, $2,164.39 in 2023 and $2,819.07 in 2024. The site also suggested that the price could average $7,338.97 in 2030, based on historical data.
PricePrediction maintained a bullish long-term Ethereum forecast, estimating that ETH could average $1,399.20 in 2022, $2,016.46 in 2023 and $4,340.44 in 2025, based on its artificial intelligence-assisted technical analysis. The website's Ethereum price prediction for 2030 suggested the price could soar to $27,572.78.
When looking for an indication of the Ethereum price outlook, it's important to keep in mind that cryptocurrency markets remain extremely volatile, making it difficult to accurately predict what a coin's price will be in a few hours, and even harder to give long-term estimates.
As such, analysts and algorithm-based forecasters can and do get their predictions wrong. If you are considering investing in cryptocurrency tokens, we recommend you conduct your own research. Look at the latest market trends, news, technical and fundamental analysis, and analyst opinions before making any investment or trading decisions.
Keep in mind that past performance is no guarantee of future returns, and never invest any money that you cannot afford to lose.
FAQs
Is Ethereum a good investment?
In volatile, high-risk cryptocurrency markets, it is important to do your own research on a coin or token to determine if it is a good fit for your personal investment portfolio.
Whether ETH is a suitable investment for you will depend on your risk tolerance and how much you intend to invest. Bear in mind that past performance is no guarantee of future returns, and never invest money you cannot afford to lose.
How high can Ethereum go in 2022?
It is hard to say. We do not know what will happen long term as a result of The Merge, so we really should just wait and see.
Bear in mind also that cryptocurrencies can be very volatile, and that prices can go down as well as up.
Should I invest in Ethereum?
That is a question which you will have to answer for yourself. Before you do so, however, you will need to conduct your own research.
Never invest more money than you can afford to lose, because prices can go down as well as up.
Related reading
Source: https://capital.com/ethereum-eth-price-prediction
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