Ethereum merge

Merge ‘jitters’ sees outflow from Ether-based investment products

CoinShares’ head of research, James Butterfill, said the outflows come despite “the improved certainty of the Merge.”

Institutional investors may be wavering ahead of the Ethereum Merge, with Ether (ETH)-based digital asset investment products seeing an outflow of $61.6 million, signaling concerns about the success of the upgrade. 

In its digital asset fund flows weekly report, fund manager CoinShares reported that Ether-based investment products made up for the majority of total outflows over the Sept. 5-11 week — leading to the market’s fifth consecutive week of outflows.

Report author James Butterfill said the outflows have come “despite the improved certainty of the Merge,” which could highlight a concern among investors that the “event might not go as planned,” referring to the upcoming Ethereum Merge set for Sept. 15.

This is despite the likelihood of a successful Merge improving over the last week, with the Bellatrix upgrade passing through relatively unscathed on Sept. 6.

84.6% of Ethereum nodes are now also “Merge ready,” according to Ethereum node data aggregator Ethernodes, which is up 15.1% from last week’s 73.5% “Merge ready” rate.

Butterfill also noted that CoinShares has previously argued that there are unlikely to be any issues arising from the Ethereum upgrade as the technical specifications of the hard fork have been rigorously tested.

Related: Institutional ETH sentiment turns positive after 11 weeks of outflows

Meanwhile, there is currently still no consensus on whether the Ethereum Merge has been factored into the ETH price, which currently sits at $1,688, and whether the Merge will be a “buy the rumor, sell the news” event.

Polygon chief security officer Mudit Gupta is of the view that the Ethereum Merge has been priced into ETH because the Merge itself is “public knowledge.”

On the other hand, a crypto researcher who goes by the name “punk4936” on Twitter believes that a 99% cut in ETH issuance and a 99.9% increase in energy efficiency following the Merge isn’t reflected in the current ETH price.

The Ethereum Merge will see the network’s consensus mechanism transition from proof-of-work (PoW) to proof-of-stake (PoS), which is scheduled to take effect on Sept. 15 at about 3:20 am UTC time, according to Blocknative.

Merge ‘jitters’ sees outflow from Ether-based investment products

CoinShares’ head of research James Butterfill said the outflows come despite “the improved certainty of the Merge.”

Institutional investors may be wavering ahead of the Ethereum Merge, with Ether-based digital asset investment products seeing an outflow of $61.6 million, signaling concerns about the success of the upgrade. 

In its digital asset fund flows weekly report, fund manager CoinShares reported that Ether-based investment products made up for the majority of total outflows over the Sept. 5-11 week — leading to the market’s fifth consecutive week of outflows.

Report author James Butterfill said the outflows have come “despite the improved certainty of the Merge,” which could highlight a concern amongst investors that the “event might not go as planned,” referring to the upcoming Ethereum Merge set for Sept. 15.

This is despite the likelihood of a successful Merge improving over the last week, with the Bellatrix upgrade passing through relatively unscathed on Sept. 6.

84.6% of Ethereum nodes are now also “Merge ready”, according to Ethereum node data aggregator Ethernodes, which is up 15.1% from last week’s 73.5% “Merge ready” rate.

Butterfill also noted that CoinShares has previously argued that there are unlikely to be any issues arising from the Ethereum upgrade as the technical specifications of the hard fork have been rigorously tested.

Related: Institutional ETH sentiment turns positive after 11 weeks of outflows

Meanwhile, there is currently still no consensus on whether the Ethereum Merge has been factored into the ETH price, which currently sits at $1,688, and whether the Merge will be a “buy the rumor, sell the news” event.

Polygon Chief Security Officer Mudit Gupta is of the view that the Ethereum Merge has been priced into ETH because the Merge itself is “public knowledge.”

On the other hand, a crypto researcher who goes by the name “punk4936” on Twitter believes that a 99% cut in ETH issuance and a 99.9% increase in energy efficiency following the Merge isn’t reflected in the current ETH price.

The Ethereum Merge will see the network’s consensus mechanism transition from proof-of-work (PoW) to proof-of-stake (PoS), which is scheduled to take effect on Sept. 15 at about 3:20am UTC time, according to Blocknative.

Ethereum Merge makes network more vulnerable to attack — Security expert

The security expert said that while PoS isn’t “theoretically” as secure as PoW, he admits it still has “sufficient practical security.”

Despite the Ethereum Merge being touted as a major upgrade to the blockchain network, its transition to proof-of-stake theoretically makes it more vulnerable to exploit.

Speaking to Cointelegraph, the security researcher explained that unlike proof-of-work (PoW) systems, a proof-of-stake (PoS) system informs node validators in advance what blocks they will validate, thus enabling them to plan attacks.

The security expert, who asked not to be named, is a blockchain developer and security researcher working on a proof-of-stake layer-2 blockchain.

The researcher explained that an exploit could theoretically occur on the post-Merge Ethereum blockchain if validators manage to line up two consecutive blocks to validate.

“If you control two consecutive blocks, you can start an exploit on block N and finish it on block N+1 without having any arbitrage bot coming in and fixing the price that you have manipulated in between.”

“From an economic security standpoint, [this vulnerability] makes these attacks relatively easier to pull off.”

The expert said that while it’s also possible for miners to validate consecutive blocks in PoW networks — that comes down to “pure luck” and gives the miner no time to plan an attack.

As a result, the security researcher argues that Ethereum will be forgoing some strength in security when the Merge takes effect:

“As we stand right now [with] the Ethereum proof-of-work versus Ethereum proof-of-stake, Ethereum proof-of-work does have stronger security […] and economic guarantees.”

“But that being said […] proof-of-stake [still] has sufficient practical security [and] it doesn’t really matter that it’s theoretically not as secure as proof-of-work. It’s still a very secure system,” he added.

Related: Buterin and Armstrong reflect on proof-of-stake shift as Ethereum Merge nears

The security expert added that “Ethereum is working on fixing [the consecutive block issue].

It is a hard problem to solve, but if that gets done, then proof-of-stake security will [further] increase [as] they’ll have protection against those attack vectors.”

Ethereum validators are subject to slashing in PoS, as the consensus rules were designed to economically incentivize validators to correctly validate incoming transactions and any conduct to the contrary would see their ETH stake slashed.

The Ethereum Merge is finally set to take place on Sept. 15 at about 2:30am UTC, according to Blocknative’s Ethereum Merge Countdown. The transition to PoS is set to make the Ethereum network more scalable and energy-efficient.

Ether price could ‘decouple’ from other crypto post Merge — Chainalysis

Chainalysis suggests ETH could decouple from other cryptocurrencies post Merge as its staking rewards could make it similar to bonds or commodities.

Crypto analytics firm Chainalysis has suggested that the price of Ether (ETH) could decouple from other crypto assets post-Merge, with staking yields potentially driving strong institutional adoption.

In a Wednesday report, Chainalysis explained that the upcoming Ethereum upgrade would introduce institutional investors to staking yields similar to certain instruments such as bonds and commodities while also becoming much more eco-friendly.

The report said ETH staking is expected to offer a 10-15% yield annually for stakers, therefore making ETH an “enticing bond alternative for institutional investors” considering that treasury bonds yields offer much less in comparison.

“Ether’s price could decouple from other cryptocurrencies following The Merge, as its staking rewards will make it similar to an instrument like a bond or commodity with a carry premium.”

According to Chainalysis data, the number of institutional ETH stakers — those with $1 million worth of ETH staked or more — has “been steadily increasing” from under 200 as of January 2021 to around 1,100 as of August this year.

The firm notes that if this number increases at a faster rate following The Merge, this should confirm the hypothesis that institutional investors “do indeed see Ethereum staking as a good yield-generating strategy.”

The Chainalysis report also tips ETH to draw in more retail and institutional traders after The Merge, as the forthcoming upgrade will make staking a much more attractive investment tool.

Currently staked ETH is locked up in a smart contract that cannot be withdrawn from until the Shanghai upgrade comes around six to 12 months after the Merge goes through.

As such the staked ETH market is currently illiquid, resulting in some staking service providers offering synthetic assets that represent the value of the staked Ether, the drawback however is that “those synthetics don’t always maintain a 1:1 peg,” argues the firm. 

“The Shanghai upgrade […] will allow users to withdraw staked Ether at will, providing more liquidity for stakers and making staking a more attractive proposition overall,” the report reads.

Related: Binance US launches low-barrier Ether staking ahead of the Merge

Another factor highlighted is that the Ethereum blockchain’s proof-of-stake (PoS) transition will see its energy consumption requirements drop by as much as 99% following the upgrade, according to the Ethereum Foundation:

“The switch to PoS will also make Ethereum more eco-friendly, which could make investors with sustainability commitments more comfortable with the asset. This especially applies to institutional investors.”

ConsenSys, the firm behind the MetaMask wallet and founded by Ethereum co-founder Joseph Lubin, also published a similar report looking at the “impact of the Merge on Institutions” this week.

The report echoes similar sentiments regarding ETH staking rewards and environmental sustainability attracting institutions, but also highlights the importance of the PoS Ethereum chain “producing stronger security guarantees for institutional investors” along with ETH’s potential to become a deflationary asset:

“Reduced ETH issuance and increased burns will systematically reduce ETH supply — putting deflationary pressure on ETH, thereby alleviating institutional concerns of token price dropping to zero, and increasing likelihood of an increase in value.”

Degens borrowing ETH to get fork tokens create headaches for DeFi platforms

Aave has halted ETH lending until the Merge has gone through, while Compound Finance has opted to cap the number of loans and introduce a “jump” interest rate model.

The growing number of speculators taking out Ether (ETH) loans to maximize their potential to earn forked Ether proof-of-work tokens (ETHPoW) has been causing headaches for decentralized finance (DeFi) protocols.

The issue has been gaining traction over the past month or so, given that a significant number of Ether miners are expected to continue working on a forked PoW chain or possibly even multiple chains post the long-awaited Merge.

In the event of a fork, on-chain ETH hodlers such as those using noncustodial wallets or those holding on exchanges that are supporting ETHPoW will be airdropped the equivalent amounts of the new tokens to their ETH holdings.

This is because your ETH balance on the existing chain will be duplicated on the forked PoW chain.

On Tuesday, the Aave governance community overwhelmingly voted in favor of halting ETH lending “in the interim period leading up to the Merge.”

This proposal was initially put forward on Aug. 24 as a result of the demand for Aave ETH loans surging to levels that were starting to put pressure on the liquidity supply.

Aave has a complex structure for issuing interest rates and utilizes algorithms to determine percentages taking into account the liquidity and demand for borrowing on the platform.

“Once the ETH borrow rate reaches 5%, which happens shortly after 70% utilization rate (we are at 63% right now), stETH/ETH positions start becoming unprofitable,” the proposal stated as of Aug. 24.

It was added that if these positions do start to become unprofitable, users would likely race to “unwind their positions up until the ETH borrow rate reverts to a stable level where the APY [Annual Percentage Yield] becomes tolerable.” As such, this would put even more pressure on the liquidity supply of ETH on Aave.

The vote yesterday polled 77.87% in favor (528,290 people) and 22.13% against (150,170 people), and the proposal was executed on the same day.

Earlier this week, another DeFi lender, Compound Finance, also had a forked Ethereum risk mitigation-related proposal that was voted through and notably had zero votes in opposition to the 347,559 in favor.

Compound’s idea, which went live as of Monday, was to set the borrowing cap at 100,000 ETH until the dust from the Merge has settled.

Additionally, the protocol updated its interest model to a “jump rate model with much higher rates after exceeding 80% borrow utilization,” which bumps to a maximum rate of 1000% APR if 100% utilization is reached.

The hope is that this will deter users from overwhelming Compound with borrowing and withdrawals from the platform.

Related: Hive Blockchain explores new mineable coins ahead of Ethereum merge

ETH outflows on exchanges

Users are certainly positioning themselves to get free tokens, despite numerous stablecoins and projects distancing themselves from a PoW chain.

Delphi Digital’s latest report notes that despite the declining price of ETH of late, exchanges saw outflows totaling 476,000 on Aug. 29.

This marks the third largest amount of ETH withdrawals since March, and the firm attributed this to Merge and investors repositioning to collect ETHPoW tokens:

“To collect the most amount of ETHPoW tokens, users are likely withdrawing ETH balances from centralized exchanges to non-custodial wallets, leading to an increase in the net outflow of ETH from exchanges.”

While it is unclear if the forked chains will attract strong enough interest to develop a lasting ecosystem and community, in the short term crypto degens at least seem keen to gobble up free forked tokens.

Ethereum’s Bellatrix upgrade hiccups jangle nerves, but it’ll be right on the night

The Bellatrix upgrade was the last major upgrade before the Ethereum Merge, which will transition the network’s consensus mechanism to proof-of-stake.

The Bellatrix upgrade preparing Ethereum for the Merge was successfully completed on Tuesday. However, concerns were raised over an almost one in ten missed block rate across the last 600 slots.

The Bellatrix upgrade updated Ethereum consensus layer clients at epoch 144896 on the Beacon Chain prior to the upcoming Merge scheduled for sometime next week.

However, 5% of the validators dropped offline during the hard fork, which contributed to the 9% missed block rate, according to Gnosis co-founder Martin Köppelmann. This led some observers to question the network’s readiness for the big switch to proof-of-stake (PoS).

Köppelmann added that the 9% figure was 1700% higher than the historical missed block rate of 0.5%. The issue may be related to the 25.6% of clients that Ethernodes cites as “not ready” for The Merge.

Percentage of Ethereum Clients that are Merge ready. Source: Ethernodes.

Partner of Cinneamhain Ventures Adam Cochran said he hoped the “big spike” in missed blocks would get debugged before the Merge proper, adding that “we really don’t want to be seeing unexpected issues at this late stage.”

But, not everyone is concerned. Anthony Sassano, founder of the Daily Gwei said that having only 5% of validators falling off the network was actually an “an amazing result” and confidently stated “there’s not actually much that can go catastrophically wrong.” with the Merge:

“I would say that the ‘worst case scenario’ would be if the chain just halts because the switchover from PoW to PoS didn’t work at all – this would then require some sort of coordinated human intervention to fix.”

“Though if we see things like validators dropping off the network due to configuration issues, missed blocks/slots or some clients having major bugs, these things wouldn’t be cause for major concern as they are relatively easy to recover from,” he added.

Related: 74% of Ethereum nodes ‘Merge ready’ ahead of Bellatrix upgrade

The Bellatrix upgrade is one of the last steps prior to the Merge and enables Ethereum consensus layer clients to execute transactions on the Beacon Chain.

The Ethereum Merge will transition the network to a PoS consensus mechanism, which is set to make the network more efficient and secure.

Ethereum domain names top Bored Apes on OpenSea’s weekly chart

Ahead of the upcoming Merge, ENS domains have reached the top of OpenSea’s seven-day chart in trading volume.

Ethereum Name Service (ENS) domain names have surpassed Bored Ape Yacht Club (BAYC) as the most traded asset on nonfungible token (NFT) marketplace OpenSea over the last seven days — seemingly ahead of the Ethereum Merge. 

According to OpenSea data, the weekly volume of the Ethereum domain NFTs eclipsed 2,249 Ether (ETH) at the time of writing, beating out RTFKT Clone X at 1,992 ETH and Bored Ape Yacht Club at 1,777 ETH.

ENS domains are a distributed, open and expandable naming system on the Ethereum blockchain that allows users to turn a long string of keys for a crypto address into a single ENS domain such as “vitalik.eth.”

This simplifies the complexity of copying and pasting a lengthy wallet address to send and receive crypto, as users only need to share their domain name like any other ordinary address.

These domain names can be bought, sold and traded between users in the form of NFTs.

The recent spike in ENS trading volume has seen the average price of ENS items increase 167% to 0.3895 ETH, or $641 at the time of writing, while daily volume has risen from 120.7 ETH to 1044.6 ETH.

There are now over 2 million ENS items on OpenSea spread among more than 508,000 owners, with total sales now sitting at 2,682 ENS domains sold.

60-Day Average Price Change For ENS on OpenSea. Source: OpenSea.

According to OpenSea, some of the most expensive ENS domain names are 000.eth, which was bought for 300 ETH and is on sale for 5,000 ETH, along with opensea.eth, crypto.eth, google.eth and nike.eth.

The strong start in September follows an impressive ENS sales month in August, which saw more than 300,000 new “.eth” registrations and monthly revenue of 2,744 ETH, the third-highest month since ENS was founded in 2018.

The spike in ENS domain name demand comes a little over a week before the scheduled date of the Ethereum Merge, which is scheduled for around Sept. 15.

Related: Ethereum Name Service registrations surge by 200% amid lower gas fees

On Sunday, Vitalik Buterin asked his 4.2 million followers what price tag a five-letter ENS domain name should hold over a 100-year period:

The poll found that 49.8% of the 91,130 voters went with “Under $100,” while 18.9% of voters thought “$10,000 or more” could be considered a fair price.

According to OpenSea, the average price of an ENS domain is 0.3207 ETH, or $533.71. 

74% of Ethereum nodes ‘Merge ready’ ahead of Bellatrix upgrade

The need to update Ethereum clients comes as the Bellatrix upgrade is set to enable the Beacon Chain to execute transactions.

As many as 73.5% of Ethereum nodes are now marked as “Merge ready” ahead of the upcoming Bellatrix upgrade for Ethereum on Tuesday, according to data from Ethernodes. 

The Bellatrix upgrade is seen as one of the last necessary steps prior to the official Merge, which will see Ethereum transition to a proof-of-stake (PoS) consensus mechanism between Sept. 10-20.

To become Merge ready, Ethereum node operators must comply with the Bellatrix upgrade by updating its consensus layer clients prior to epoch 144896 on the Beacon Chain, which is scheduled to take place on 11:34:47 am UTC on Sept. 6, 2022, according to the Ethereum Foundation.

Percentage of Ethereum clients that are Merge ready. Source: Ethernodes.

However, with 26.5% of nodes marked “Not-Ready” for the Ethereum Merge, Ethereum co-founder Vitalik Buterin and core developer Tim Beiko took to Twitter to remind remaining node operators to update their clients.

According to the Ethereum Foundation, node operators that don’t make the update prior to the Bellatrix hard fork will cause the Ethereum clients to “sync to the pre-fork blockchain,” warning:

“[Node operators] will be stuck on an incompatible chain following old rules and will be unable to send Ether or operate on the post-Merge Ethereum network.”

According to Ethernodes, most of the “Not-Ready” nodes are on the Geth client, who have yet to upgrade to Geth v1.10.23 or higher. 

Other Ethereum clients with node operators that require updating include Erigon, Besu and Nethermind.

Ethereum nodes are required to validate blocks and can be run by different Ethereum client software that varies in the programming language and codebase used.

Following the Bellatrix upgrade, the last part of the Ethereum Merge will occur in what is called the Paris event, which will be triggered when the Terminal Total Difficulty (TTD) reaches 58750000000000000000000 — estimated to occur around Sept 15.

Related: The Merge Q&A: A triumph for Ethereum — or a disaster waiting to happen?

Once the execution layer exceeds this TTD, the next block will be produced by a Beacon Chain validator. The finalization of this block will mark the complete transition of Ethereum’s blockchain to the proof-of-stake mechanism.

According to the Ethereum Foundation, Ethereum users do not need to do anything with their Ether (ETH) and Ethereum-based assets during the Merge, but should be on the lookout for scams that suggest otherwise.

Ethereum Classic books 12% rally as mining support for ETC gains pace

ETC price secures a double-digit gain as its hashrate hits a record-high and BTC.com adds a Ethereum Classic mining option to its services.

Ethereum Classic (ETC) price rallied on Sept. 5 on back-to-back positive reports concerning its adoption among crypto miners.

Top mining pool supports Ethereum Classic

On the daily chart, ETC’s price surged 14.5% to nearly $37.25 per token. Its massive gains came days after BTC.com, a blockchain explorer and crypto mining pool, launched a specialized Ethereum Classic pool with “zero-fee” mining for three months.

ETC/USD daily price chart. Source: TradingView

The announcement appeared after “the Merge,” a long-awaited network update that would switch Ethereum’s energy-intensive proof-of-work (PoW) protocol to a “cost-efficient” and scalable alternative, the proof-of-stake (PoS), on Sept. 19 or before.

But the switch to PoS will make Ethereum’s PoW miners futile. On the other hand, Ethereum Classic, the original version of Ethereum, which still uses PoW, could become a haven for the miners affected by the Merge.

The network is already attracting PoW miners en masse, confirmed by its hashrate, which touched a record high of 41.81 Terrahash per second (TH/s) on Sept. 4. For the unversed, hashrate is the total computational power used to mine and process transactions on a PoW blockchain.

Ethereum Classic hashrate. Source: CoinWarz

This migration has helped ETC rally incredibly in recent months; it is up 200% since mid June.

ETC price could rise another 60%

From a technical perspective, Ethereum Classic looks ready to undergo a circa 60% price rally in September.

Notably, ETC’s price has formed a “bull flag” in recent weeks. Bull flags appear when the price consolidates lower after a strong uptrend. Meanwhile, they resolve after the price breaks out in the direction of its previous trend and are thus considered bullish continuation patterns.

As of Sept. 5, ETC tested its bull flag’s upper trendline for a potential breakout move. Suppose the token does it. Then, its likelihood of rising further will be higher. Also, as a rule of technical analysis, the price could rise by as much as the previous uptrend’s length, as shown below.

ETC/USD daily price chart featuring ‘bull flag’ breakout setup. Source: TradingView

In other words, the ETC bull flag’s profit target comes to be at around $58.50, up almost 60% from Sept. 5’s price.

Related: ETH Merge: CoinGecko co-founder shares strategy for forked tokens

Conversely, a decisive break below the bull flag’s lower trendline risks invalidating the upside setup explained above.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.

US dollar smashes yet another 20-year high as Bitcoin price sags 2.7%

There seems to be no stopping the greenback as risk assets, including Bitcoin, pay the price for renewed strength.

Bitcoin (BTC) faced familiar pressure on the Sept. 1 Wall Street open as the U.S. dollar hit fresh two-decade highs.

BTC/USD 1-hour candle chart (Bitstamp). Source: TradingView

Trader: DXY could hit 115 before ‘slowdown’

Data from Cointelegraph Markets Pro and TradingView followed BTC/USD as it fell to $19,658 on Bitstamp, down 2.7% from the day’s high.

The pair faced stiff resistance trying to flip the important $20,000 mark to solid support, with macro cues further complicating the picture for bulls.

That came in the form of a resurgent U.S. dollar index (DXY) on the day, which beat previous peaks to reach 109.97, its highest since September 2002.

U.S. dollar index (DXY) 1-day candle chart. Source: TradingView

Risk assets thus broadly lost ground, with the S&P 500 and Nasdaq Composite Index trading down 1% and 2%, respectively at the time of writing.

“DXY with another strong day,” popular crypto trading account Kaleo summarized on Twitter.

“Honestly see zero signs of it wanting to slow down until ~114/115, which at this rate should take at least a couple of months.”

Other commentators, including crypto account TXMC Trades, noted the declining Japanese yen as an additional dollar booster. USD/JPY hit 140.21, marking its highest since August 1998.

“Dollar at levels last seen in 2002. Key time here it seems. Bulls need a reversal. Bears need a break out,” NorthmanTrader founder, Sven Henrich added, noting that the DXY relative strength index (RSI) was “very stretched.”

Bad timing?

Further clouds on the horizon meanwhile made Sept. 15 a key date in crypto traders’ diary.

Related: Bitcoin mining has never been more competitive even as BTC loses 13% in August

Just days after the August Consumer Price Index (CPI) inflation print would be due, payouts as part of the Mt. Gox rehabilitation process would begin after years of legal work.

Creditors would thus start to receive a share of almost 140,000 BTC, last traded at a price below $500 a coin.

While the resulting selling pressure is a topic of debate, the launch coincides with the Ethereum Merge, where the largest altcoin by market cap jettisons proof-of-work for proof-of-Stake as its consensus algorithm.

Cold feet reigned supreme across crypto sentiment on the day, captured by the Crypto Fear & Greed Index falling to 20/100 — its lowest since July 18 and corresponding to “xtreme greed.”

Crypto Fear & Greed Index (screenshot). Source: Alternative.me

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, you should conduct your own research when making a decision.