After years of being the number-one smart contract blockchain, the network upgrade will transition ethereum to a less energy-intensive technology. You may have previously heard of the planned updates as Ethereum 2.0 or Eth2, but the Ethereum foundation has called it the “Ethereum Merge” for months.
Industry experts have been closely watching every step leading up to the update, predicting it could significantly alter the second-largest cryptocurrency’s value. Ethereum’s price dropped below $1,500 Thursday morning in the hours following the completion of the merge. Along with the merge this week, next week’s Federal Reserve meeting could bring new volatility to ethereum’s price, with another federal interest rate hike expected.
How Will the Ethereum Merge Influence Your Crypto Investments?
Some experts say the update could spur growth for Ethereum after new blockchain projects ate into its market share over the past six months.
That’s because the ethereum merge could speed up processing and offer greater security and stability, and a 98% or greater reduction in Ethereum’s energy consumption, Hashoshi said.
Related altcoins could see a price growth with this upgrade, says Armando Aguilar, an independent crypto analyst and former digital asset strategist at Fundstrat Global Advisors.
“The positive momentum will be for those projects that are building on top of Ethereum such as polygon, arbitrum … among many others,” he says. Meanwhile, competing protocols such as solana and polkadot could see added pressure from the ethereum ecosystem, as the upgrade will allow the network to scale, bring down transaction costs, and attract additional adoption of blockchain technology.
Do Investors Need to Do Anything With Their Tokens?
The ethereum website say current ETH holders don’t need to do anything in light of the merge.
“It’s like a software upgrade,” says Doug Boneparth, a financial advisor and president of Bone Fide Wealth.
How Should You Change Your Investment Strategy?
There’s no reason you should do anything while things develop. It will take a while until everything is in place, and other factors such as increasing regulation could affect ethereum and other cryptos during this time.
“If you’re investing in ethereum or any kind of blockchain technology, you’re investing in something that’s in its early days,” says Boneparth. “You’re going to need a long-term time horizon to see how things evolve. I really don’t think there’s a lot that folks who own ethereum should be doing at this point.”
Instead, this is a great moment to strengthen your knowledge about crypto and blockchain tech, says Boneparth. “If you’re not an investor and you’re curious, this is a great moment of education. If you are an investor, and you still don’t understand, it’s a great moment to educate yourself and learn,” he says.
The fact that there’s an upgrade and that blockchain transactions keep growing says a lot about the direction all of this is heading, notes Boneparth. “And it’s never ever, ever, ever too late to learn,” he says. “And that might just very well give you an edge or decide in terms of investing in crypto or any other cryptocurrency.”
With any crypto investment, financial planners caution you should never keep more than 5% of your portfolio in cryptocurrency. You should also prioritize paying off debt and padding your emergency fund rather than investing in crypto, no matter how tempting it could be to ride the wave. More than anything, experts say don’t invest any more than you’d be OK losing, since crypto is such a young and speculative asset class.
Should you still have room for some risk given these factors, ethereum could be a decent bet. Along with Bitcoin, experts consider ethereum among the safest crypto investments even before the merge might drive a return to prices closer to the all-time high it set in late 2021.
The price of ethereum has dropped more than 35% from its all-time high back in November 2021, and trading volume has lulled. And some bullish investors predict the price of ethereum to rally to upwards of $10,000 in the coming years.
“After this latest drawback on prices, it might be smart for investors who have the appetite to be in the space to deploy some additional capital — based on their tolerance and their free cash — so that they can invest into this digital asset,” says Aguilar.