Ethereum (ETH) has officially captured the wider financial world as it prepares to undergo one of its most significant upgrades ever. Such is the magnitude of interest around the upcoming merge event that Google is now displaying a countdown to the seminal event.
As a refresher, the upcoming merge event will formalize Ethereum’s transition from a Proof-of-Work (PoW) transaction authentication mechanism, where miners expend computational power to win the right to authenticate incoming transactions, to one based on a Proof-of-Stake (PoS) framework, where validators lock up a specific amount of Ethereum in dedicated nodes in order to compete with each other to authenticate transactions and introduce new blocks into the chain. The transition will reduce Ethereum’s energy footprint by around 99 percent.
Moreover, the merge might also pave the way for the world’s second-largest cryptocurrency to become deflationary, at least for a while. Vitalik Buterin had claimed back in July that the annual issuance of ETH would be equal to 166 times the square root of the number of staked coins after the merge. As of this moment, 13.642 million Ethereum coins have been staked on the Beacon Chain. By applying Buterin’s calculations, the annual issuance of Ethereum based on the current staked level equates to 613,137.31 ETH or 1,679.82 ETH per day. Now, over the past 7 days, 9,881 ETH were burnt, equating to a daily burn rate of 1,411.57 ETH. This means that based on the current dynamics, Ethereum will add just 268.25 ETH tokens to its net supply every day, and might even become deflationary in the days ahead should its burn rate – determined via Ethereum’s base fee – increases as network activity picks up.
4/ An important fact: money flowing out of ETH before the merge decreases the chances of getting a sell-the-news-event.
This means that, paradoxically, ETH bulls should root for ETH/BTC to go down. We are seeing the first signs of that happening now. pic.twitter.com/cVa5UxfC3A
— Captur | Research | FRCK (@CapturFi) September 11, 2022
This brings us to the crux of the matter. As Ethereum’s merge event approaches, some investors have been betting on a “sell the news” type of move in the immediate aftermath. This is understandable given Ethereum’s substantial outperformance relative to Bitcoin in recent weeks. In anticipation of such a move, these investors have been withdrawing capital from Ethereum and deploying it toward Bitcoin, resulting in marked weakness in Ethereum/Bitcoin cross price in recent days, as illustrated in the chart below:
Paradoxically, the lower Ethereum’s price goes relative to Bitcoin in the pre-merge phase, the higher would be the probability of evading a disorderly liquidation in the post-merge phase. This means that in pre-empting a “sell the news” type of move, such investors are hurting the probability of their bearish bets actually materializing.
A strong ETHPOW unwind has taken place in the last week. Can observe this in the ETH quarterly basis turning less negative, from -9% to -3.5% (as traders sell spot & long futures) and in ETHPOW futures going down. That's bullish as it reduces selling pressure on the merge event. pic.twitter.com/wn5fbpfAR0
— Alex Krüger (@krugermacro) September 11, 2022
Meanwhile, the sentiment around Ethereum seems to have improved just ahead of the upcoming merge event. As an illustration, Santiment’s NVT model, which measures the ratio between unique ETH coins being moved and Ethereum’s market capitalization, is currently in its best state in around 16 months:
📊 We are officially less than two days from the big #Ethereum merge, & on-chain metrics are looking positive for the #2 market cap asset. According to our NVT model, the ratio between unique $ETH being moved and the network's current market cap is in its best state in 16 months. pic.twitter.com/dLC8fUdNYS
— Santiment (@santimentfeed) September 13, 2022
Do you think Ethereum will be able to evade price weakness in the immediate aftermath of the merge event? Let us know your thoughts in the comments section below.
About the author: Writing is my one incontrovertible passion. Over the past six years, he has authored over 2,200 distinct articles on financial and tech-related topics, spanning nearly 1 million words. And he has been a member of Wcctech mobile team since 2025. As an alumnus of the University of Toronto, Rotman Commerce Program, I bring nuance, in-depth knowledge, and a unique perspective to every topic that I cover. When I'm not writing, I'm traveling the world, exploring hidden confectionaries and restaurants as an aspiring food connoisseur.
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