Based on historical indicators, is Ethereum merger now priced?

Author: Lucas Campbell, source: Bankless, this article is compiled by DeFi Tao

Last week, we saw the successful completion of The Merge.

This is a milestone in the history of cryptocurrencies. The circulation of Ethereum has dropped by an order of magnitude, the network has become more environmentally friendly, and the pledgers have begun to gain real benefits.

In view of the potential impact of the merger, many people want to know whether the main catalyst has been priced (Priced In, the market reflects the corresponding price after digesting the information).

If history is taken as an indicator, it does not.

In fact, in the history of cryptocurrency, we have seen five major supply shocks between BTC and ETH:

  • Half Bitcoin for three times (2012, 2016, 2020)

  • Beacon Chain

  • EIP-1559

None of these events were priced when the catalyst occurred. Let's read it.

A historical shot;

In the heyday of Bitcoin, my colleague Cooper Turley and I wrote an article entitled "Bitcoin halving: price effect and historical relevance". This is the first big hot event in our early encryption career.

This article studies every time Bitcoin is halved, and analyzes its impact on prices before and after halving.

The following is a summary:

  • Historically, Bitcoin reached ATH within 12-18 months after halving.

  • The duration of each cycle will be extended

  • Returns are decreasing

At that time, we only had two Bitcoin halved data points. Considering the small sample size, this is a bold statement. But now, we can fill in the data of the third half of Bitcoin& nbsp;

The following is the update table we showed in the article: 

  • BTC almost reached the ATH value 18 months after the halving

  • The cycle is extended (barely)

  • The return is decreasing

Therefore, our analysis is valid.

This highlights the fact that historically, halving Bitcoin has never been priced.

When the cryptocurrency market anticipates a supply shock, the price will rise slightly in advance, and then with the reduction of miners' daily selling pressure (as well as other drivers), the asset will show a parabolic trend in a few months.

The following is a visual receipt.

First halving - November 28, 2021

Second half - July 9, 2016

 The third half - May 11, 2020

As we can see, no halved event is priced before or at the time of the event& nbsp;

This is just an experience of what is coming.

However, we are talking about ETH now.

Halving bitcoin is one of the most popular messages in cryptocurrencies. It is set to occur every 4 years. Everyone knows it's coming. Every major participant understands this& nbsp;

Nevertheless, it is well known that the crypto market has been underperforming in pricing these simple (but important) changes in asset supply and demand dynamics, and the daily selling pressure actually reduces by half every four years or so.

To put it bluntly,The encryption market is unable to price the simplest and most famous supply shocks.

As a result, it is more difficult to predict the supply and demand catalysts of Ethereum. This is mainly because these upgrades are not programmed, but depend on the developer's schedule (this is usually a dice rolling process).

In any case, in the past two years, Ethereum has seen two (now the third) important basic catalysts in its supply and demand dynamics, because it is moving towards a fully conceived network: the release of beacon chain, the implementation of EIP-1559 and the recent merger.

1. Beacon Chain;

The beacon chain will be launched on November 4, 2020.

When the beacon chain deposit contract is open, the price of ETH is $450& nbsp;

Since then, with 5 million ETH locked in the new PoS chain, its price has climbed to more than 4000 dollars in seven months& nbsp;

In general, the gain from beacon chain start to cycle peak is+760%.

2. EIP-1559 

The second major catalyst was EIP-1559, which burned about 70% of the transaction costs paid to miners& nbsp;

The EIP was implemented in August 2021, when the ETH price fell sharply from ATH before May& nbsp;

Strangely, the bottom of ETH happened to be at the time when the EIP entered the real-time test network in June, and began to rise when the EIP was scheduled to go online in July.

After the implementation, the price of ETH broke ATH again nearly 3.5 months later, because 1 million ETH was quickly withdrawn from the miners and permanently withdrew from the market& nbsp;

3. Consolidation

Like all Bitcoin halving, beacon chain and EIP-1559, consolidation is another major basic catalyst for cryptocurrency asset supply and demand.

As far as the background is concerned, the merger has been tested since early June this year. After Sepolia conducted the second large-scale test, ETH rebounded sharply from the bottom of $800 at the beginning of June. As the main network merger date was determined in August, it almost reached $2000.

This is actually a pre hype stage for all other catalysts. It has been proved that ETH rose 50% from the cycle low point during this period, while BTC only rose 9%.

Now we are in uncharted waters. Merge behind us, and the future is still a mystery. From historical experience, we should have a pleasant journey.

Unfortunately, as ETH fell below $1400 over the weekend, this argument started a bit hard& nbsp;

From the data, this can be partly attributed to the miners' selling of their ETH (and another potential interest rate increase by the Federal Reserve this week).

Source: Oklink

The selling of their ETH by miners is an outstanding problem, and we must overcome it in the next few months to restore the rising mode, but this will happen.

however,There is a bigger problem: macroeconomic is a fierce battle.

Now we have: 

  •   The Federal Reserve raised interest rates sharply (75 basis points higher this week?)& nbsp;

  •   The continuing war between Ukraine and Russia and the resulting energy crisis

This poses considerable resistance to cryptocurrencies and overall risky assets. If the world catches fire, it doesn't matter what happens to the supply and demand dynamics of our magical internet beans. The number will not rise.

What do we think about this?

This is a difficult environment for investors& nbsp;

On the one hand, historically, the market's pricing of the basic supply and demand catalyst is very bad. In the history of cryptocurrency, every other supply and demand catalyst will have ATH in the next year.

Merging should be no different. In fact, given the tracking record, if ETH does not show a parabolic trend in the next 12-18 months, the actual situation will be even more surprising. Given the tremendous impact of this catalyst, it should be a home run.

The only problem is that the world is now in the heat. And how you decide to play this game is where investors make money.

As a perma bull,I (naturally) stand on the side of history: mergers are not priced.