The Merge Trade - The Daily Gwei #517
Everyone's trying to trade it - few are strong enough to invest in it.
The Merge is coming - we’re all well aware of that by now - but the question on everyone’s mind is how to play the event from an investment perspective. As Hal Press from NRD outlines below, The Merge is not a “trade” - it is a long-term investment that will be influenced heavily by a structural shift in ETH flows as well as many things I’ve outlined previously in this post.
For those who haven’t heard yet, the Ethereum mainnet is more than likely going through the merge transition in mid-late September with the final public testnet (Goerli) running through it around August 10th. This means we are really just 2 months away from Ethereum becoming a full Proof of Stake network and newly issued ETH dropping by about 80-90%. And as Hal notes above, this is a structural shift in the flows of ETH as an asset - we are going from millions of dollars worth of freshly mined ETH being force-sold each day to basically 0 sell pressure (since withdrawals of staked ETH and rewards aren’t enabled at time of The Merge).
Given these facts, Hal is right to say that this isn’t a trade and that a long-term investment horizon should be taken when buying ETH. I mean, I’ve personally been buying ETH since basically day 1 in anticipation of a Proof of Stake Ethereum and I also wrote about the issuance reduction that was coming all the way back in January of 2019. Obviously it’s taken a lot longer for Ethereum to transition to Proof of Stake than we’ve all been led to believe, but it really is just around the corner this time.
There are many ways people are trying to get exposure to ‘The Merge trade’ such as just buying ETH itself, buying staked ETH tokens (stETH, rETH), buying governance tokens for staking services (RPL, LDO, SWISE) and even buying competitor layer 1 tokens as a “hedge” against some sort of “failed merge”. I’ve even seen people saying that they’re buying ETC (Ethereum Classic) because all the miners are going to go there after The Merge. Of course, this makes very little sense because it’s well documented that hashrate follows price and not the other way around, but these people are simply playing an attention trade with ETC.
I think it should go without saying that none of the above is investment advice and I am of course not a financial advisor - it’s just a discussion around something that everyone seems to be talking about these days. Obviously I am ultra long ETH and have been for a very long time, but as we’ve seen over the last 6 months the markets can induce a lot of pain in the face of even the most bullish of catalysts. For this reason, it’s best to know the investment time-horizon that you’re comfortable with before pulling the trigger on a purchase of any asset.
Have a great day everyone,
Anthony Sassano
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All information presented above is for educational purposes only and should not be taken as investment advice.