On Thursday (August 25), Cumberland, which is “a specialized cryptoasset trading company within DRW, a diversified principal trading firm”, commented on the crypto market in general, and in particular about the potential ramifications of Ethereum’s upcoming “Merge” upgrade, which marks the transition from proof-of-work (PoW) to proof-of-stake (PoS).
Here is how Ethereum Foundation explains the Merge, which is expected to take place around September 15:
“The Merge represents the joining of the existing execution layer of Ethereum (the Mainnet we use today) with its new proof-of-stake consensus layer, the Beacon Chain. It eliminates the need for energy-intensive mining and instead secures the network using staked ETH. A truly exciting step in realizing the Ethereum vision – more scalability, security, and sustainability.
“It’s important to remember that initially, the Beacon Chain shipped separately from Mainnet. Ethereum Mainnet – with all it’s accounts, balances, smart contracts, and blockchain state – continues to be secured by proof-of-work, even while the Beacon Chain runs in parallel using proof-of-stake. The approaching Merge is when these two systems finally come together, and proof-of-work is replaced permanently by proof-of-stake.
“Let’s consider an analogy. Imagine Ethereum is a spaceship that isn’t quite ready for an interstellar voyage. With the Beacon Chain, the community has built a new engine and a hardened hull. After significant testing, it’s almost time to hot-swap the new engine for the old mid-flight. This will merge the new, more efficient engine into the existing ship, ready to put in some serious lightyears and take on the universe.“
Earlier today, Cumberland took to Twitter to comment on the crypto market:
- “As the summer winds down, many markets are at a crossroads: equities have stalled as recession indicators reemerge, most commodities have rebounded on tighter forward supply concerns, and all eyes are on the Fed for some signaling about the near term directionality of rates.“
- “Even before these clouds emerged, digital assets had underperformed the recent risk-on move – a cause for concern. Thus, if the macro picture continues to tighten/deteriorate, it’s hard to see crypto outperforming.“
- “That said, we think the crypto-specific liquidations have largely concluded, and so price action is probably going to continue chopping violently with macro for the time being. The benefit of this volatility is that it has likely shaken out the ‘Merge frontrunners.‘”
- “Thus, the Merge (if completed successfully) is now a real catalyst: the impact of removing ~$20M/day of miner selling is impossible to ignore. Thus, it will take significant macro headwinds to offset the impact of that flow’s sudden disappearance.“
In case you are wondering why Cumberland believes that currently (i.e. pre Merge) there is roughly $20 million a day of $ETH selling pressure from miners, here is some data from YCharts:
As you can see, yesterday (August 24), $ETH miners received as mining rewards 13087.94 ETH, which is worth roughly $22.39 million at the of writing (12:30 p.m. UTC on August 25). And of course, if we have a successful Merge upgrade on the Ethereum, block mining rewards will be gone since we will have PoS consensus.
Image Credit
Featured Image via Pixabay
