Just as it happened during 2017 with bitcoin and its problem to scale, suffering several forks in a short time, it seems that history is repeating itself, but now with Ethereum. It is true that at that time the forks to bitcoin served as a catalyst (reaching its ATH), but it is also true that all bitcoin forks were completely useless, as time has shown us, because to scale they needed users and adoption in equal parts, which never came. Another factor that greatly influenced the jar of all those forks was the implementation of the Lightning network, the real improvement of bitcoin .
Ethereum’s switch to a proof-of-stake network, is scheduled for the end of September. The goal is to unlock accessibility and give ethereum’s blockchain scalability. In essence, the merge moves ethereum from a Bitcoin-style proof-of-work consensus mechanism to a proof-of-participation system.
Merge does not aim to reduce transaction costs, but to transform Ethereum into a powerful underlying infrastructure, the first step is the Beacon Chain. This transforms Ethereum, taking it from PoW to PoS, where all participants can deposit their eth to validate transactions. What Merge does is merge the old Ethereum execution layer with the new consensus engine provided by the Beacon Chain, swapping the current algorithm that uses proof-of-work miners with a coordinated network of proof-of-participation validators. The change in consensus algorithms also sets the stage for fragmentation.
With the excitement of potential forks on ethereum, demand this past week has skyrocketed as the chart shows. It is very succulent to receive 1:1 other Ethers, which will undoubtedly trade at a good price and have high trading volume the first 15 days. Be careful to fall into siren songs type bitcoin cash or satoshi vision are the real bitcoin or the best chain. Faced with ethereum we will see the same speeches and the same fomos, trying to mislead or dissuade people that ETH will always be ETH, where its more than 1,580 tokens in its network, and above all the support of having the largest number and volume of stable coins, places it far above forks, which undoubtedly live their moment, but in the long run will contribute little or nothing to the ecosystem.
Just seeing Justin Sun supporting the forks, already puts me on alert about his intentions to place his stable coin in these new networks and support them, providing them with liquidity and speed in transactions. If you understand this, I think you understand that he will be the only winner in all this absurd war of interests, therefore loitering the new eth forks will make you fall into “The Retailer’s Trap”, where exchanges, miners and leaders with hidden interests will speak only to defend their own interests.
No doubt this fork of ETH is a corporate maneuver of the billionaire mining business, to extract all the juice from the PoW network until the end of its days and beyond. I fear that the power of hashing in the ethereum blockchain for the nuances that it is taking, is of little use, the entire ethereum community seems to be clear that for their future they need to take the step to PoS.
Financial Strategy
COINBASE recently surprised us with the news of the launch of a service offering staking on ETH to institutional investors. Then we have also seen a few days ago that BlackRock (the world’s largest asset manager) and Coinbase have closed a deal to buy cryptos, and for their BlackRock institutional clients to get exposure to digital assets indirectly. Seems like unconnected news, but I’m afraid it’s quite the opposite, the hunger games over ETH have begun, and I give you my reasons below:
Point 1) ETH turns over $1.2 B a year, of which $866M is used to buy back the token (approx. 70%), what we commonly call organic demand.
Point 2) The Ethereum merger is going to impact the supply side, not the demand side (the network already buys $866 million a year, therefore supply already has its organic impact).
Point 3) As you can see in the following image, the network is not able to buy all the new eth coming out every day from mining, therefore it is deflationary. Every year 47% of all the ETH in circulation is repurchased, the rest is not able to be absorbed by the network itself.
Point 4) If we pretend that MERGE has already been applied, the numbers we get are very different, clearly exceeding the annual buybacks in a X4.37 way, therefore the network controls the balance between supply and demand.
Point 5) Coinbase knows that a staker can receive between 5 and 10% per year of eth as performance for its delegation, but coinbase is going to offer to the institutions that enter the staking some very different returns to those of most retail delegators, and it is thanks to implement MEV strategies or maximum extracted value, being able to increase that profitability by 50% more (15%-18%annualized), since Coinbase taking advantage of its status as validator, will make direct onchain operations on the defi ecosystem.
Point 6) Applying logic and financial criteria, ETH is undoubtedly the most consolidated startup in the entire crypto space, as it has implications in finance, web 3, art, gaming, audits, security and control among many other things, all these facts make it very appetizing to invest in eth to delegate.
CONCLUSION
Coinbase has already taken out the scientific calculator and it is smoking, it knows that if they present this business correctly to blackrock and other institutions, at least 35% of all the eth that are now in circulation will leave the market, being locked in their validators, therefore the pressure on the price will have a greater power than 5 Hiroshima bombs together, since it will have to add a greater eth burning than those produced and almost 900 million dollars per year organically used to buy back ETH.