Ethereum’s Price Rise: Hype or Fundamental?

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The Ethereum Merge, arguably the most prominent and long-awaited event of 2022, is scheduled to happen in mid-September. There are even some talks that the upgrade may happen sooner than expected. Nonetheless, The Merge is coming and the crypto world is anticipating its effects on the Ethereum blockchain and its vast ecosystem of applications and users.

The price of Ether, the native cryptocurrency of the blockchain has been on the rise for the past 6 weeks. Even though The Merge seems to be the real reason behind the increase, some other factors, like the rising inflation rate in many of the world’s major economies, could also have a hand in this.

Additionally, the nature of the Merge’s effect on Ether’s price has been another topic of discussion: is the promise of technical improvements the real reason behind the price appreciation or it’s just a temporary hype that would cool out eventually?

Ethereum’s Long Journey to Proof of Stake

The Merge will bring impressive upgrades to the Ethereum blockchain if implemented successfully. It’s the most important step in Ethereum’s multi-stage plan to become a Proof of Stake (PoS) blockchain.

Ethereum was built as a Proof of Work system which relies on power-intensive hardware to operate and keep the system running. As the ecosystem grew gradually, Ethereum started to experience some technical difficulties, like high transaction fees, as it only could verify a limited number of transactions per second.

Transition to a Proof of Stake system was proposed as a solution to this problem which would eventually lead to a more scalable, sustainable, and secure blockchain. The Merge is the second step in this upgrade which will literally merge the Beacon Chain PoS system with Ethereum’s mainnet. This will result in a 99.95% reduction in the energy consumption of the Ethereum blockchain.

Even though the upcoming upgrade is not focused on reducing the transaction costs, it will set the stage for Sharding, which aims to increase Ethereum’s scalability. If everything goes as planned, we can expect Ethereum to take back its lost market share as high transaction fees were the main reason why many projects migrated to alternative networks.

Ether’s Price and The Merge

The Merge will bring Ethereum one step closer to its final goal which can eventually increase the usability of its native currency. This can be considered as one of the positive factors behind Ether’s recent price increase.

However, some argue that the sudden jump in Ether’s price is mostly caused by the hype surrounding The Merge as market members are trying to jump on the wagon and make the best of the current market situation. This theory is reflected in the derivatives markets as traders are anticipating the price of Ether to plummet after The Merge.

Nevertheless, Ethereum’s fate strongly depends on the implementation of its upcoming upgrades. In the meantime, we will have to wait and see whether the most prominent blockchain in the DeFi sector can live up to its promises.

Crypto Market and The Rising Inflation

The crypto market usually reacts positively to poor dollar performance as some investors consider major cryptocurrencies like Bitcoin and Ether as a suitable alternative during uncertain economic times. However, Bitcoin is showing a high correlation to traditional markets recently which has raised some concerns. However, we could argue that the inflation data and the possibility of a recession could have been another factor in Ether’s price increase.

All things considered, there are multiple factors responsible for the current market situation of Ether and it seems like The Merge and its execution will have the final say in this.

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