Ether Bulls Ascendant as Anticipation Builds for The Merge

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After a bearish start to 2022, Ethereum market sentiment appears to be flipping bullish.

The first quarter has been rough for Ethereum and DeFi, with ETH shedding a quarter of its value and the combined capitalization of DeFi assets falling 22%. The downturn prompted many analysts to declare the bull trend over, but Ether now appears poised to rally ahead of its highly anticipated Eth2 chain merge.

On March 15, The Merge was successfully completed on the Kiln merge testnet, marking the final test of the chain merge before it is deployed to public testnets. Analysts took to Twitter to remind the community what can be expected when the Ethereum mainnet merges with the Eth2 Beacon Chain, forecasting a 90% reduction in Ether issuance and a more than 99% drop in energy consumption.

Recent Bounce

The progress towards The Merge appears to be reflected by Ether’s recent bounce, with ETH gaining 14.4% since March 14. And institutions loading up their ETH bags. 

On March 17, Three Arrows Capital reportedly added 40,500 Ether worth $112M to its holdings. The move came despite the firm’s co-founder, Zhu Su, claiming to have “abandoned” Ethereum in November.

On March 6, analytics firm Santiment reported that billionaire wallets have continued to accumulate despite the markets pulling back since November. It noted that ten-figure whales have added 2.2% of ETH’s supply to their wallets in the past six months.

According to CoinShares, instruments tracking Ether represented also saw a significant uptick during February, despite the month’s choppy price action. Also on March 17, Ethereum researcher Alexander Fisher tweeted that a record 302,000 Ether ETH is currently in queue for staking activation.

Many ETH holders have been deterred from staking by the current lack of withdrawal functionality for Ether locked up on the Eth2 Beacon Chain since it was launched in December 2020. 

With withdrawals expected to be enabled within months following The Merge, an increasing number of hodlers now appear willing to stake their ETH in spite of being able to withdraw their coins. Ethereum is currently the second-largest network by staked capitalization with $26.5B despite less than 8% of supply being staked currently and withdrawals not yet enabled.

Bearish Trendline

Willy Woo, a popular on-chain analyst, posted on March 18 that ETH appears poised to break above a long-term bearish trendline. Several of his followers chimed in with charts that similarly suggest an upward move may be incoming. “Crypto Rover” posted a chart to their 75,500 followers indicating that the bearish trend has already been broken on the ETH/BTC charts.

However, Twitter user “PayneResidence” retorted that “trendlines are very subjective,” suggesting that Exponential Moving Averages (EMAs) may offer a more accurate indicator. Their EMA chart suggests Ethereum may need to clear roughly $2,900 in order to break out of its current bearish range.

Bill Barhydt, the CEO of centralized digital asset platform Abra, told CNBC on March 11 he believes ETH could soon surge to $40,000 amid increasing adoption of NFTs, DeFi, and GameFi.

Gas Fees

“The use cases are through the roof,” he said. “Ethereum’s network effect is based on this idea that it could become the world’s computers. It’s being used for stablecoins, NFTs, DeFi…, and gaming now.”

However, his prediction is contingent on the network’s sky-high gas fees pulling back. “If the gas fees and the transaction fees come down, which is the promise of the Proof of Stake, look out, because now all of the impediments of those network effects are taken out of the way,” he said.

Many believe that Ethereum’s fee woes will soon be behind it. While Layer 2 gas prices are already a fraction of what they are on mainnet, EIP-4488 and EIP-4490 are expected to slash the fees associated with transacting on roll-up networks by more than 80%

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