- Richard Hart says the consolidation process is bullish for Ethereum in the long term.
- In the short term, there are many negative variables that play against the price of ether.
- They include technical glitches, the price of bitcoin, and the broader economic environment.
An important event for the crypto sector is fast approaching.
In mid-September, Ethereum is expected to perform the long-awaited upgrade known as Merge. The switch will take the cryptocurrency blockchain from Proof of Work (PoW) to Proof of Stake (PoS) which is supposed to reduce power usage by over 99%.
Removing miners from the equation will also drop operating expenses. Instead, the value generated from the fee will be distributed to those who mortgage their ether. The rest will be burned, which could make the cryptocurrency deflationary. Hal Press, founder of digital asset hedge fund North Rock Digital, compares the new distribution structure to dividend returns and stock buybacks.
Even though we’re in a crypto winter, old habits don’t die easily. This shift has led some investors to return to their old ways of buying rumor and selling news. Ether hit a year-to-date low in mid-June when it broke below $1,000, down nearly 80% from its all-time high. But by mid-August, it had cashed in on $2,000 before backing off. As of Wednesday, it is trading near $1,567. The extreme volatility of cryptocurrencies is like butter to bread, as one would expect.
The upgrade is indeed bullish news for Ethereum. The price of ether will stabilize and increase in the long run as the selling pressure from miners who trade their bonuses to cover operating costs will be removed, says Richard Schuyler, better known as “The Heart.” What it won’t do is lower fees, which is something investors need to understand.
Hart says buying ether now is just a bad strategy. In the short term, there are a lot of moving variables that can play against the price of Ether.
He is the founder of Hex, an ERC20 token launched on the Ethereum network designed to replace high-interest savings accounts and act as a store of value. It is also working on a new Layer 1 called PulseChain, a controversial project that is intended to be an Ethereum replica that copies carrier ether on itself.
Tell Insider if the Ethereum upgrade has a failure, Hex will have problems as well. Like any software upgrade, there may be things that are not right. This is one of the reasons why it is not recommended to make speculative bets before the merger.
The risk is not limited to falling prices. In traditional stocks, investors speculate all the time. They can even sell shares if they think the underlying company will fail. However, a failed blockchain upgrade may not mean a price drop. He noted that this could instead lead to a freeze of transactions.
There is also a strong possibility that the price of Bitcoin will drop further, which is causing the price of Ether to fall as well. There has been a positive correlation between bitcoin and ether since late 2017, and with a coefficient of 0.83, both tend to rise and fall together, according to Coin Metrics data.
First, bitcoin is still not down as much as 85% from its all-time high, a pattern observed during crypto winters. In a previous interview with Insider, Heart said that Bitcoin would need to drop anywhere between $10,600 and $10,350 lower. This means that the minimum price for Ether is around $750.
Second, previous crypto winters did not occur during the broader economic turmoil, he added. But this time around, the Federal Reserve has not finished its fight against inflation, which means interest rates will continue to rise. He said that as long as the price goes up, the stock market and cryptocurrency will only go down.
Third, Heart notes that the Grayscale Bitcoin Trust (GBTC), which buys bitcoin and then sells shares, is trading at a discount of roughly 33% to the value of the bitcoin. In his view, this eliminates the demand for physical bitcoin.
“The dream is that they stop raising interest rates,” Hart said. “Bitcoin is dumping 85%, and the Grayscale discount is gone.”
Finally, the bitcoin community is still waiting for an inventory of hundreds of thousands of bitcoins once the US and Japanese governments issue the forfeited coins from Ross Ulbricht, founder of Silk Road, and the headquarters of the bitcoin exchange in Tokyo, Mount Jukes.
Hart noted that at some point, bitcoin could deviate from the stock market, or ether could diverge from bitcoin. However, this will only happen after everyone is done selling.
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