Ethereum is the second biggest cryptocurrency according to its market cap, right after Bitcoin. It was created by Vitalik Buterin, and after many years it is going through an important upgrade.
Ethereum 2.0 is coming
Everyone from the crypto space knows Ethereum (ETH). It is a well-known cryptocurrency for decentralized applications (dApps), and it worked on an energy-hungry proof-of-work (PoW) system, but that is about to change forever. ETH could be mined just as Bitcoin. However, it is going to switch to proof-of-stake (PoS) somewhere between 15th and 16th September. So bye-bye Ethereum 1.0, welcome Ethereum 2.0.
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Many Hodlers of Ethereum are excited about this upgrade and want to stake it to receive a competitive annual percentage return (APR). Ethereum briefly reached a price of $2,000 on August 14, up from $879 in May. As of now, ETH has recently fallen by another 5% and is trading below the $1,900 level. So is this upgrade going to help the price explode, or is it just fear of missing out (FOMO)?
“The Merge is the most significant upgrade in the history of Ethereum. Extensive testing and bug bounties were undertaken to ensure a safe transition to proof-of-stake,” states ethereum.org website.
The transition from PoW to PoS is definitely beneficial for society as it will reduce Ethereum’s energy consumption by about 99.95%, according to Ethereum. The merge represents the joining of Ethereum’s existing layer with the new PoS layer, the Beacon Chain. Instead of using energy-intensive mining, it uses staked ETH to safeguard the network.
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The goal of this merge is to achieve more scalability, security, and sustainability on the Ethereum network. While this upgrade might be very helpful to the network, developers, and many other involved participants, it does not necessarily mean the price of Ethereum is going to explode as the bear market is still present.
We are still in a bear market
Looking simply from a technical perspective, Ethereum and the whole crypto market are still in a downtrend. ETH is down about 60% from its all-time high (ATH) in November 2021, and now it has reached a crucial level. A strong resistance, trend line, and moving average (EMA200) create a possible sell signal. Moreover, several bearish divergences are forming that point to a next move downward.
Ethereum daily chart, source: tradingview.com
Crypto investors are not the only ones at a loss. U.S. Bitcoin mining companies lost over $1 billion, many stocks are down by a significant percentage, inflation is still high, and interest rates all over the world are rising and could go even higher. While this merge is a big event, the economic factors suggest the current downturn in markets could continue for at least a few more months.
Ethereum 2.0 staking
There are many tokens that investors could stake and receive a competitive APR. For example, Terra offered its users 19% interest on staked Terra coins. However, this was labeled as unsustainable. Reportedly, the staking yield on Ethereum’s Beacon Chain could bring anywhere from 4% to 7% yearly, and investors need to lock their Staked ETH (sETH) to receive these returns.
A lot of investors might be interested in staking their ETH. However, there is some minimum requirement to be eligible. A minimum of 32 ETH is necessary to become a validator, stake, and receive the APR mentioned above. It is still uncertain how long the sETH must be locked, but experts estimate it anywhere between 6 to 12 months.
The bottom line
While the transition from PoW to PoS might be a great step into a better and more environmentally friendly future, there are risks of a possible downturn in the next few months due to a bad economic situation. On the other hand, for those who want to stake for several years, there is a high probability of profit in the end, plus the interest.
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