Ether charge may want to decouple from different crypto publish Merge: Chainalysis

By: Ikenna Odunze

Ether charge may want to decouple from different crypto publish Merge: Chainalysis

September 8, 2022 5:59 PM

Since its staking rewards may make it similar to bonds or commodities, Chainalysis indicates ETH may wish to decouple from other cryptocurrencies after Merge.


Chainalysis, a cryptocurrency data and research firm, has hinted that the price of Ether (ETH) after a merger may become uncorrelated with other cryptocurrencies and that staking of returns may result in widespread institutional adoption.


In a report dated September 1st. According to a report published by Chainalysis on January 7, it is predicted that the impending Ethereum upgrade will cause large financial institutions to shift their focus to greener investments in instruments like bonds and commodities that offer similar returns.


If the report's projections come to fruition, holders of ETH will enjoy annual returns of 10-15%, making the cryptocurrency a "enticing bond alternative for institutional investors" in light of the much lower returns available from Government bonds.


"Since Ether's staking rewards will make it similar to an instrument like a bond or commodity with a carry premium, its price may become uncorrelated with other cryptocurrencies after The Merge."


From less than 200 in January 2021 to around 1,100 in August 2021, the number of institutional ETH participants (those who have invested $1 million or more in ETH) has "steadily increased," according to data from Chainalysis.


If this number rises more quickly following The Merge, the company says, it will prove that institutional investors "really see Ethereum staking as a good revenue generation strategy."


The upcoming update will make staking a much more attractive investment vehicle, according to the Chainalysis report, which suggests that after The Merge, ETH will attract more retail and institutional traders.


Until the Shanghai upgrade occurs, which is expected to happen between six and twelve months after the merger, the currently staked ETH will remain bound to the smart contract and unavailable for withdrawal.


Since the ETH staking market is currently illiquid, some staking service providers have begun to offer synthetic assets that represent the value of Ether staking. However, "these synthetic assets are not always keep a 1:1 peg," the company argues.


Adding more liquidity for players and making staking more appealing in general, "the Shanghai update [...] will allow users to withdraw staked Ether at will," the report states.


The Ethereum Foundation claims that after the upgrade to the Proof-of-Stake consensus mechanism, Ethereum's blockchain's power consumption requirements will drop by as much as 99%.


"Investors with a commitment to sustainability may feel more at ease with Ethereum after it makes the switch to PoS because of the asset's improved environmental friendliness. And this is of particular importance to institutional investors."


This week also saw the publication of a report titled "Impact of the merger on institutions" by ConsenSys, the company behind the MetaMask wallet and founded by Ethereum co-founder Joseph Lubin.


Aside from echoing common sentiments regarding ETH staking rewards and environmental sustainability's ability to entice institutional investors, the report also emphasizes the significance of the Ethereum PoS chain, "which offers stronger security guarantees for users and institutional investors," and ETH's potential to become a deflationary asset:


"Reduced ETH issuance and increased burns will systematically reduce ETH supply — putting deflationary pressure on ETH," which "will alleviate institutional concerns of token price dropping to zero and increase likelihood of an increase in value."