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Post-Merge ethereum (ETH) could become safe-haven asset

By Daniela Ešnerová


Updated

A logo of ethereum (ETH).
Ethereum’s new protocol will have far-reaching implications in ETH trading performance, according to analysts. – Photo: Shutterstock

When Ethereum’s (ETH) long-awaited proof-of-stake upgrade, dubbed the ‘the merge’ is complete, the digital token’s market performance could be similar to safe-haven assets such as gold and bonds, analysts predict. 

The most optimistic forecasts say this could happen as early as Q4 2022, while others caution it could “happen next year at best”. 

Despite its nickname digital gold, bitcoin (BTC) has not lived up to its reputation as a safe-haven asset. In fact, the crypto king has been moving in tandem with equities, including US tech-index the  Nasdaq, which has taken a battering this year so far. 

Ethereum to US dollar (ETH/USD)

And the rest of the digital assets market, in turn, tends to mimic BTC moves. This correlation with risky assets tends to be more pronounced during times of stress. But this risky behaviour may be about to change. 

Ethereum’s ‘Merge’ – the last step in the blockchain’s update to an environmentally more friendly proof-of-stake protocol – was set to happen earlier this month, boosting ETH traders’ sentiment.

But it was delayed, and is now expected to be finalised in June. 

And when it does happen, ETH could break away from its correlation with the likes of Nasdaq and become a “bond type of asset”, analysts predict.

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Nasdaq (NDAQ) 

ETH to become ‘bond-like type of asset’

Noud Bouwhuis, analyst at asset management firm Blockchain Investments, believess the upgrade could lead to a change in ETH’s trading performance.

“What is not correlated with equities? Government bonds and gold. This is because they have claimed a position where there is enough stability that investors need in turbulent times, especially to retain purchasing power,” he said. “More importantly, the underlying intrinsic value of these assets do not depend on the equity market for their returns.”

Bouwhuis predicts The Merge may happen in the third or fourth quarter of 2022. 

“This will perhaps create a semi-government bond type of asset further supporting ETH and BTC's digital gold. It will bring annual returns and its intrinsic value will increase, ” he added. 

SOL/USD

174.73 Price
+2.540% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 2.2652

DOGE/USD

0.13 Price
+7.030% 1D Chg, %
Long position overnight fee -0.0753%
Short position overnight fee 0.0069%
Overnight fee time 21:00 (UTC)
Spread 0.0012872

ETH/USD

3,534.28 Price
+0.660% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 6.00

BTC/USD

67,477.60 Price
+0.620% 1D Chg, %
Long position overnight fee -0.0616%
Short position overnight fee 0.0137%
Overnight fee time 21:00 (UTC)
Spread 106.00

Gold spot (XAU)

Bouwhuis points to ETH’s use in decentralised finance (DeFI) staking protocols as giving it the potential for elevated bond-like returns. 

“Post merge, I think ETH could be seen as a semi bond as it is net deflationary, with a whopping 10-15% annual return if you stake it. In times of increasing inflation we may flock to these semi-government bond types of investments.”

Tom Dunleavy, cryptocurrency analyst at Messari, also predicted such a trajectory for the digital coin in a post published earlier this week.

“While inflation likely stabilises, it does so at a higher level, disrupting the negative correlation for traditional safe-haven assets vis-a-vis equities. New alternatives need to be considered.”

Dunleavy said that post-Merge ETH would in fact be a new type of hybrid bond with many desirable qualities for institutional investors. 

Earlier this month, Arthur Hayes, co-founder and former CEO of cryptocurrency exchange BitMEX, wrote that the post-Merge ETH will have characteristics of “commodity-linked bond“ and that the coin could hit $10,000 this year (it is currently trading under $3,000).

When will BTC and ETH diverge? 

While analysts agree that post-Merge ETH will change its performance behaviour, opinions on when that may happen, differ. 

Dunleavy says that the post-Merge ETH and BTC correlation will gradually decline and experience periods of persistent negative correlation as early as Q4 2022.

Bouwhuis takes a more conservative approach and thinks this shift would occur in  “2023 at best”.

Markets in this article

ETH/USD
Ethereum / USD
3534.28 USD
22.98 +0.660%
Gold
Gold
2401.36 USD
-44.85 -1.830%
NDAQ
Nasdaq
62.59 USD
0.07 +0.110%
US100
US Tech 100
19526.6 USD
-224.4 -1.140%

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