The entire crypto community held its breath. But “The Merge”, the big Ethereum update, finally went as planned, without a hitch. The blockchain, of which ether is the native token, has successfully transitioned from proof of work (proof of work) to proof of stake (proof of stake). This new transaction validation system allows operation that consumes much less electricity. Yet ether has plunged 16% since “The Merge” in mid-September to around $1,350 per digital token.
A strong correction that should not worry about the long-term upside potential of the cryptocurrency. Karl Toussaint du Wast, co-founder of Netinvestment, specializing in wealth management, and formacrypto.fr, which provides training in the world of cryptocurrencies, explains why.
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Capital: Why did ether fall after “The Merge”, when this update, which should allow the Ethereum blockchain to operate much less energy-consuming, went well?
Karl Toussaint du Wast: A correction in Ether was expected, this is not a surprise. The cryptocurrency also experienced a real rally 15 days to three weeks before the “Merge”.
In the crypto market, transactions are done a lot in an automated way, by robots. There, the order had been given to cut the positions during the update, on September 15th. There was an autocorrect related to all positions that were unblocked. For investors, it is a way to take their profits. We are here on a purely speculative logic, very short-termist.
Capital: Will ether rally in the next few months or is it at risk of central bank monetary tightening and financial market turmoil?
Karl Toussaint du Wast: In theory, and in essence, the crypto market should be decorrelated from equity markets, because the philosophy of cryptocurrency is the very opposite of centralized finance. But the higher the key rates of central banks rise, the more it serves risky assets, including cryptocurrencies. The next six months are going to be complicated for all assets, equity markets, such as real estate or cryptocurrencies.
In any case, you have to look at an investment over the long term and a period of 10 years, whatever the asset class. Last November, the crypto market had crossed 3,000 billion dollars in capitalization. There, it is less than 1,000 billion, around 930 billion. So it’s rather a good gateway to investing over several years.
Capital: Do you think that the capitalization of ether, of around 165 billion dollars, will eventually exceed that of bitcoin (369 billion dollars), whose blockchain still works and always works with proof of work?
Karl Toussaint du Wast : Everyone talks about flipenning (an expression used to designate the moment when ether will overtake bitcoin, editor’s note). Bitcoin and ether are two different assets. On one side you have a store of value, bitcoin, which is like digital gold, and on the other side an application, the Ethereum blockchain, from which ether is derived.
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Only 3 to -4% of human beings on Earth today use cryptocurrencies. The operational potential of ether is gigantic. It is ultra scalable (deployable on a large scale, editor’s note) and expansive. Its value will depend on the number of users while that of bitcoin is more linked to the number of holders. Ether will go up as the technological adoption of blockchain increases. And it could very well overtake bitcoin.
The Ethereum update goes with the flow of history. There are more and more blockchains that work with proof of stake, with the main advantage of being much more ecological.
Capital: What are the consequences of “The Merge” for users?
Karl Toussaint du Wast: The merge is a technological feat but there is no consequence for users, those who carry out transactions, who use smart contracts (automated contracts on the blockchain, editor’s note) or hold NFTs acquired in ethers. You have no particular action to take. If you are asked to act on your wallet, it’s a scam (a scam, editor’s note).
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The Merge does not increase the volume of transactions or reduce the fees on these transactions. This is the first step in a long series of updates to the Ethereum blockchain, which will further improve its operation.