Investment Thoughts: ETH Merge
Sell the news?
Hey everyone, here for a quick piece this week. I wanted to share some investment thoughts that I have been mulling over in my head.
Feel free to reach out on Twitter to discuss this
Also, feel free to email me with any non-technical job opportunities. I am still searching and appreciate anything! thomas@genzvoice.com
What the Merge means for the price of Ethereum
TLDR: I believe post-merge, the price will fall due to sell-side pressure, but over the 6-12 month period following, Ethereum has the potential to regain previous highs of over $3,000.
Well, it is finally here. After years of waiting, Ethereum is finally merging onto the proof of stake network.
As most of us know, Ethereum is a very narrative-driven asset, therefore this event proves to be one of the largest in Ethereum's lifetime.
There has been a lot of speculation surrounding ETH’s price relative to the merge, which will occur late Wednesday/early Thursday. Many are saying this is a typical “sell the news” event. Whereas people believe ETHs price will appreciate prior to the merge and then will sell off after.
While I understand this sentiment, I personally believe it is a little overblown. I do believe the price of ETH could fall 5-10% as traders exit their positions after the merge, but do not believe this will be a long-term effect. In fact, I think Ethereum will make up any losses post-merge very quickly. At the end of the day, I think Ethereum's price is driven more by usage and large macroeconomic factors. Let’s talk about those factors.
Macroeconomics
With CPI data this week coming at 8.3%, the Fed is expected to raise rates by another 75 bps for September. With this expected, investors have mostly priced this in and are hoping for this to be the last hike above 50 bps for the year. While most remain bearish in the market, I on the other hand am turning bullish. One of the main reasons is the rumors circulating that in October we will see venture funding pick back up again. While this doesn’t do a lot across the broader market I do think it will have some effect on the cryptocurrency ecosystem. Why? Because of usage.
Ethereum Usage
I believe the upcoming rounds of venture funding in Q4 of this year, mixed with the large movement of web 2 brands into web 3 (Starbucks, NHL, + more) will result in the usage of Ethereum skyrocketing over the next 6-12 months. At the end of the day, an increase in usage will always be helpful to the price of an asset.
Some Charts
I took the liberty of building some charts to showcase the recent usage of Ethereum.
First, we are looking at the daily active ETH wallets on the chain since last September. As you can see there isn't much change overall, which begs the question, why at the same time has ETH gone from $4k to $1k? Either the asset is undervalued now or was overvalued back then. I believe it is a mix of the two.
Now we are looking at the daily new wallet creation on the ETH chain. This chart isn’t terribly interesting alone… so let’s layer on ETH price over the same time.
This is where it gets kind of interesting. We can see a pretty decent correlation between how many new wallets are created daily next to Ethereum price. More new wallets = a price increase.
This chart is where my usage thesis really comes into play. As venture funding increases, as well as a hopefully calming macroeconomic environment, mixed with more web 2 brands entering the space, I think we will see this key metric, daily new accounts created, increase dramatically over the coming months and especially in 2023. This, in turn, will result in an appreciation of Ethereum's price.
Disclaimer: This is not investment advice. Please do your own research before investing. Tom Lombardozzi and his family do currently hold a position in the asset mentioned throughout this article (ETH).