From Palm Beach Daily
|One of the most frequent questions I’m receiving from readers right now is about last month’s completion of the Ethereum “Merge.”The Merge is Ethereum’s transition from a Proof-of-Work (PoW) protocol to Proof-of-Stake (PoS). |
I’ll explain more on that in a moment. But some described it as changing a jet engine in mid-flight. In other words, a highly technical feat. It happened! It was successful. And it went off without a hitch.
So why aren’t the crypto markets exploding as a result?
It’s important to remember that cryptos don’t operate in a vacuum. If you follow the broad market, it’s a very tough macro environment for nearly every asset. Inflation is at record highs. And interest rates continue to rise rapidly. That’s taken a toll on the markets. Since the beginning of the year, stocks and bonds are down 21% and 14%, respectively. Even a so-called safe haven like gold is down 7% over the same period.
What we’re seeing is a massive shift of capital allocation as interest rates increase. So, even though there are a lot of positive things going on with crypto, this macro environment is keeping a lid on prices. Until we get past that, it’s unlikely we’ll see any huge rallies. But the good news is we’ve been here before. And crypto will eventually rebound. I’ll tell you about the catalysts I see on the horizon that will eventually propel crypto back to new all-time highs. First, let me explain what the Merge is – and why it’s such a big deal for Ethereum.
The Surprising #1 Sector to Buy Now
Forget stocks, bonds, commodities, and regular cryptos. According to Teeka Tiwari, Etherum and tokens on the Etherum 2nd layer blockchains should are one’s you should be looking at.
Elon Musk, the richest man in the world, has invested in these types of cryptos. And so has venture capitalist Marc Andreessen and billionaire Mark Cuban.Do they know something you don’t?
–The Next Evolution of Ethereum “The Merge”… that’s the name for the next evolution of Ethereum. I don’t want to get into the weeds, but here’s a brief explanation…We’re about to see a major reduction in the incoming supply of ether (Ethereum’s cryptocurrency or “token”), thanks to the Merge. As mentioned above, this is when Ethereum transitions from a PoW to a PoS protocol.
In the PoW model, crypto miners solve complex math problems to validate transactions and earn a reward… think bitcoin mining. With PoS, miners validate transactions by staking tokens on the network, and the network determines who receives the award. Since PoS networks don’t rely on warehouses full of mining equipment, they’re less expensive to run… and networks can issue far fewer tokens as rewards.
This creates scarcity by reducing the incoming supply of tokens… and scarcity increases the token’s value. With the Merge now complete, there is a 90% reduction of the number of ether (ETH) coming to market. That means there will be fewer tokens in circulation – making each more valuable. Plus, the transition makes Ethereum over 99.9% more energy efficient. That makes it a more ESG-friendly investment. Before the Merge, our research suggests vast amounts of money on the sidelines waiting for its completion.
Institutional money managers were getting a lot of heat from folks demonizing PoW because of its energy-intensive nature.A move to PoS kills that argument and clears the way for further investment.And it’s starting to happen already.
Fidelity, for example, recently filed with the SEC to launch the Fidelity Ethereum Index Fund.Combined with the large reduction in issuance, Ethereum is poised for a massive rally when the macro environment improves.
What This Means for Ethereum Ethereum successfully completed the Merge on September 15. And that’s wonderful news. But the Merge ended up being a “buy the rumor, sell the news” event. I know that can be a bit disappointing when we expected Ethereum to pop after the Merge. But crypto markets bottomed in June… they rallied into the Merge… and then, once it happened, there was a little bit of a sell-off. That’s just kind of typical for big events like that.
I wouldn’t read too much into it. What you should know is Ethereum remains the most vibrant ecosystem in crypto. It has the most developers, users, and applications. Its recent activity shows an ecosystem that’s alive and well… active addresses and transactions remain stable. There’s actually growth in ETH transfers and DeFi transactions.
And there’s meaningful growth in Layer 2 transactions as well
Decentralized exchanges (DEXs) continue to see about $2 billion in volume daily. So Ethereum is not dead by any means. And the developer mindshare continues to be impressive. Ethereum has more developers than the next four biggest projects combined. Looking forward, the next upgrade for Ethereum is going to be called “Shanghai.”After the update, ETH stakers will be able to withdraw their staking rewards.
More Catalysts on the Horizon for Crypto Despite all the negative news you read in the press, there are a lot of positive things happening in the crypto market. One I want to note is bitcoin. If you’re familiar with bitcoin, you know it goes through a halving cycle about every four years. The last halving was in 2020. And the next will occur in 2024.
Generally, bitcoin and altcoins bottom about midway through a halving cycle… then consolidate and rally into the next halving. We’re now at the halfway point of the current cycle. So that’s a positive for us. Bitcoin can also benefit from the growing distrust in central bankers. Around the world, central bankers have been tightening monetary policy by raising rates and selling bonds. That’s until the Bank of England did an about-face a couple weeks ago. It announced it would start buying bonds to quell the economic turmoil in its bond markets.
Other central banks could reverse course now as well. The point is, you can’t trust what they’ll do. Bitcoin, on the other hand, is controlled by code, not people. And its supply as well, also controlled by code, will only ever be 21 million BTC. That kind of certainty is increasingly valuable in today’s macro environment .Another positive is regulation. And we have a lot of things happening on the regulatory front.The Biden administration issued a directive to federal agencies to provide their input and framework for the development of digital assets six months ago. And their first report came out last month.Then there’s also the Financial Innovation Act. If passed, it would go a long way towards giving the green light to institutions and larger players to get into crypto with that regulatory framework available.
–Crypto Winter Is the Best Time to ActI know we’re in the middle of another Crypto Winter. And it’s frustrating to deal with these down markets where your positions just go sideways for weeks on end. But as I mentioned above, we’ve been here before. And now’s a great time to put some capital to work in the crypto markets. One way to do that is to invest in what Daily editor Teeka Tiwari calls Tech Royalties (or Crypto Royalties). These tokens are unique in that they automatically pay you what we call “crypto income,” just for holding them. So you not only get access to the explosive upside of the underlying crypto as it grows… you also earn more crypto on top of your initial investment.
Plus, these payments are made whether the crypto’s price goes up or down. Ethereum is one example of a crypto project that can pay you income. But it’s not the only one. It’s also important to remember the benefits of what we’re doing right now and why it’s important to start staking right away. Especially during a Crypto Winter. We’re able to stake when the prices are depressed and accumulate tokens.
And then, as markets improve, we’re not only going to benefit from the tokens we already collected, but as prices rise, our yield will also go up.Considering we’re in a down market, you don’t need to be aggressive. Put some bids out there, and as Teeka says, let the game come to you.