Is the Prospect of the Ethereum Merge Driving Prices?
Ethereum (ETH), the second-largest cryptocurrency by market capitalization at over $400 billion, appears to be waking up from its slumber following a period of high volatility. According to CoinMarketCap, Ethereum is trading around $3,400 at press time on 28 March, representing a nearly 15% increase over the previous week and a 40% increase from its price of $2,462 on March 7.
It is worth noting that Ethereum’s transaction volume has increased by more than 90% in the last 24 hours, while Bitcoin and Dogecoin have increased by nearly 70% and 16%, respectively. There are signs that investor interest in mainstream cryptocurrencies such as Bitcoin, Ethereum, and Dogecoin is rising, indicating a market recovery could be on the way. The following factors are the prime drivers for ETH’s price increase.
The impact of the merge
For years, Ethereum developers have been working on a transition from the blockchain’s original proof-of-work (PoW) consensus model to a more environmentally friendly proof-of-stake (PoS) model. When the network upgrade is successful, it is expected to exponentially increase the number of transactions per second that the blockchain can process, reduce network congestion, speed up the settlement, and lower transaction fees.
This fusion of PoW chain and enhanced PoS blockchain is known as ETH 2.0 and Ethereum consensus layer, and it is also referred to as the Ethereum merge. The term appears to have been in use for some time, as Google search data shows that searches for “Ethereum Merge” have increased by 300% in the last week. However, the expected completion date of the merge is currently set for the end of the second quarter of this year or sometime in the third quarter. As discussion on a recent Bankless Rollup, the possibility of a June date for the merge is outlined by r/EthStaker subreddit, SuperPhiz who detailed 5 indicators that the merge will happen in June:
1. There’s a planned ‘difficulty bomb’ coming mid-June.
2. Danny Ryan signaling that a delay in the bomb isn’t needed.
3. The Merge Mainnet Readiness Checklist is nearing completion.
4. Devs are being picky about delays.
5. The Kiln testnet is testing the merge.
Ethereum supply is low on crypto exchanges
If the news of the merge and its positive impact on the price of ETH is a motivator to buy, the bad news is that the supply of tradable ETH on cryptocurrency exchanges worldwide is decreasing. According to Glassnode, the current supply of ETH available on 18 different exchanges worldwide is only 17.97% of the circulating supply, the lowest percentage available since March 21, 2022, when it was 28.54%. This means that investors have been transferring ETH from exchanges to off-chain crypto wallets for personal investment purposes or have invested in DeFi projects. According to Glassnode data, the amount of ETH locked in DeFi projects has increased by 16.35% since January 9, 2022, and the total value locked (TVL) has surpassed $220 billion US dollars.
Currently a portion of each newly minted ETH is burned to make the token more deflationary and limit the circulating supply, further limiting the supply of ETH. According to WatchTheBurn.com, more than 2 million ETH has been burned since the Ethereum Improvement Proposal (EIP)-1559 last August, resulting in a net reduction of 64% in ETH supply. As a result of these constraints, there is a limited supply of ETH, which has indirectly further increased the price of the ETH token.
The NFT craze
Another reason for the rise in Ethereum’s price is the market’s increasing adoption of NFTs and the continued growth in popularity of DeFi protocols, as the Ethereum blockchain serves as the foundation for both protocols. According to CryptoSlam data, recent NFT sales over $600 million, a 4.99% increase in the last seven days. Clearly NFTs are increasingly a critical component of creators’ economic income, whether for individual artists or corporate entities, especially as more and more brands expand into the metaverse. In comparison, Ethereum competitor Solana “continued its two-week uptrend on March 30, rising, in part, owing to its integration with OpenSea, the world’s biggest nonfungible token (NFT) marketplace by volume,” according to Cointelegraph.
